Insights

A Micro-Financing NBFC Turned Bank

March 11, 2021

A Micro-Financing NBFC Turned Bank

Suryoday Small Finance Bank, which started as a microfinance company, is all set for an IPO. The lender has a loan book size of Rs 4,000 crore. As of July 31, 2020, it operated 482 banking outlets spread across 12 states and union territories in India.

The bank’s net worth reportedly stood at Rs 1,066 crore as of March 31, 2020, which was up 21% year-on-year. The company had a net worth of Rs 880 crore last year. Deposits have gone up from Rs 1,593 crore in FY19 to Rs 2,848 crore in FY20.

Journey Starts with Micro Financing

Suryoday Small Finance Bank began its journey in 2009 as a microfinance institution and has since served over 1.5 million people. The company started as a non-banking finance company (NBFC). As per media reports, the founders believed that financial support for the bottom of the pyramid is usually sold to, and not purchased by, customers. The lender nudged its customers to open a bank account, however small the amount might be.

In 2009, the business correspondence space was evolving. It used to take 10 minutes for a transaction to go through business correspondence, and most of the transactions that went through the business correspondence network were remittance business where there was a payout to the BC agent.

But back in 2009, the company was not allowed to become BC so it encouraged some of its customers to become Customer Service Points (CSPs ) for the bank. This encouraged and nudged other customers to start saving.

Hence, the company came up with an idea of customer’s piggy bank boxes and asked them if they could save Rs 20-30 daily. The answer was that it was possible. While the response to this idea was overwhelming, the company still managed to distribute 1,500 piggy boxes which were priced at Rs 55 per box then.

From Micro-Finance To Bank

It was at that time, when the company, as an NBFC, thought that it should either become a bank or an agent for the banks.
Even after the customers saved enough money, Suryoday was unable to help them open a bank account. This was an unfulfilled promise.
At that point, the company said that it never aspired or dreamt of becoming a bank one day. Back then, its net income was Rs 30 crore.

The company believed that if its microfinance customers said that they do not need a loan and that they have saved enough — it is at that point that we would consider ourselves successful.

When the small finance bank space opened up for a limited period, the company was reportedly unsure if it would be able to get it. But the company attempted it by putting out a business plan.

Banking Operations

Suryoday is a Scheduled Commercial Bank that commenced banking operations in 2017.

Suryoday offers a full suite of banking solutions – with loan products that include Microfinance Loans, Business Loans, Commercial Vehicle Loans, Home Loans, etc; deposit products that include Savings Account, Current Account, Fixed Deposit, Recurring Deposit, etc; insurance products for Life Insurance, Medical Insurance, General Insurance and investment products such as SIPs, Mutual Funds, etc to help people achieve new milestones and aspirations.

Suryoday offers a basket of products to the unbanked and the underbanked segments of the society in addition to catering to a cross-section of the already banked segment.

With a team of 4500 people, Suryoday operates from over 525 banking outlets spread across 12 states and union territories.

Customer Acquisition Cost

As per some media reports, the bank’s operating ratio to the value of asset size is 5% to 6%(historical number). But given the unit size of servicing the customer, it will be more per unit of loan or savings. This is because the balance of these customers is far less in terms of the account.

For meaningful service to these customers, we offer doorstep service. This makes the process a lot more expensive compared to doing it through digital means.

Along with this, the BC network is getting wider and wider. There are around 10 lakh CSPs and at that point, people can walk in at any point in time.

COVID-19 Impact on the Lender

The business was reportedly at a standstill for a period of six months from April to September. After that, it started opening up. At the overall level, the customers did get impacted.

Maharashtra which is the bank’s core market was impacted as people were unable to travel for work. But the bounce-back was sharp for the lender.

During this time, the bank realised that for the contactless opening of an account, we cannot use biometrics. So, the lender started opening accounts using iris and these accounts were opened in a matter of minutes and not hours.

As the Covid-19 pandemic dawned, over one lakh of our customers paid us through digital means, but later the effect tapered off.

IPO Details

Suryoday Small Finance Bank’s IPO details are yet to be out. As per the company’s DRHP, the company will issue 2 crore shares, some of which will be pre IPO.

Axis Capital, ICICI Securities, SBI Capital Markets, and IIFL Securities are the merchant bankers for the issue. Shares of the bank will be listed on BSE and NSE.

The IPO comprises fresh issuance of 1,15,95,000 equity shares and an offer for sale of up to 84,66,796 shares by existing shareholders, draft papers filed with the Securities and Exchange Board of India showed.

The IPO will reportedly not only enhance the company’s net worth but also support its growth plans.