Small Finance Banks' Loan Growth To Moderate To 25–27% In FY25: Crisil
The number of branches has more than doubled over the past five years, reaching 7,400 as of March 2024.
(Photo by Andre Taissin on Unsplash)
Small finance banks' loan growth will moderate to 25–27% in the current financial year in comparison to 28% in the last fiscal, Crisil Ratings said on Monday.
Despite being a bit lower, the advances growth will be strong and driven by factors like segmental and geographical expansion by the entities, according to the report.
Despite maintaining healthy capital buffers, the SFBs will encounter challenges in attracting and managing deposits, and may seek alternative, non-deposit funding sources to support credit growth, according to the agency.
Asset growth is expected to be fuelled by traditional microlending, which remains highly popular, as well as emerging areas such as mortgages, small business loans, and unsecured loans.
"Credit growth in new asset classes is seen at 40% this fiscal, while that in traditional segments will be 20%," its senior director Ajit Velonie said.
He added that the share of new asset classes will cross 40% by the end of next March on the back of faster growth and underlined that most of the asset diversification is for secured assets.
According to the agency, the number of branches has more than doubled over the past five years, reaching 7,400 as of March 2024.
The eastern region has seen the most significant increase, now hosting 15% of branches compared to 11% in March 2019. More than half of the branches are located in rural and semi-urban areas, which offer substantial market potential.
In fiscal 2024, deposit growth outpaced credit growth at 30%, a trend that differs from the broader banking sector. Notably, 90% of the liabilities are derived from deposits.
The agency highlighted that, while growth drivers such as capital and deposits are crucial, there also needs to be a focus on managing other sources of funding.
The agency said 30% of the total deposits are the expensive bulk deposits and the reliance on this avenue was just 23% towards the end of fiscal 2022. The share of low-cost current and savings account deposits has slipped to 28% from 35%.
Noting that the SFBs typically give up to 2.5% higher interest offerings than banks, the report said reliance on term deposits will continue given the higher opportunity cost to maintain CASA balances for depositors in the current interest rate scenario.
Among the alternatives, securitisation is gaining currency, the agency said, pointing out that transactions reached Rs 9,000 crore in fiscal 2024 from Rs 6,300 crore in fiscal 2023, with five SFBs tapping the market. A total of five entities have accessed this route till now, it said.
"We could also see SFBs resorting to obtaining more refinancing lines from all India financial institutions, which, apart from the diversification benefit, could offer cost savings," its director Subha Sri Narayanan said.
(With Inputs From PTI)
