Suryoday Small Finance Bank Growth Plan

Suryoday Small Finance Bank is a new small finance bank based out of Mumbai having started its banking operations in January 2017 with their first Branch at CBD Belapur, Navi Mumbai. Suryoday Microfinance Ltd. was one of the 10 entities and the only one from Maharashtra to receive the license from Reserve Bank of India to set up Small Finance Bank as part of RBI’s financial inclusion initiative in 2015.

Suryoday Microfinance Ltd. started its operations in 2007. By 2014 they had operations in Maharashtra, Karnataka, Gujarat, Tamil Nadu, Odisha and Rajasthan with the cumulative disbursement of Rs. 785 crores and Gross loan portfolio of Rs. 327 crores and total branch strength of 70. By the time they received final license from RBI to commence small finance bank, Suryoday had Total customer base of 7.6 Lakhs, 985 Crores GLP and branch network of 226 branches. The company is headed by R Baskar Babu, a very senior finance & banking professional with over 23 years exeprience in top companies like Cholamandalam, HDFC Bank and GE Commercial Finance in various leadership positions.

Suryoday Small Finance Bank Capital Raise and Valuation

In 2016, the company raised Rs 100 crore of fresh equity capital from a domestic investors like IDFC Bank, HDFC Standard Life etc. Existing investor Aavishkaar Goodwell exited at a profit and Lok Capital also made a partial exit at a profit.

In early 2017, the company raised Rs 158 crore through a combination of rights issue (Rs 100 Cr) and private placement (Rs 58 Cr) . TVS Shriram Growth Fund invested about Rs 41 crore for a 4.5% shareholding. Other investors included HDFC Holdings, HDFC Life, ASK Pravi Group, IFC (World Bank Group), Developing World Markets, responsAbility Investments AG, Gaja Capital and Evolvence India Fund II.

As of Jan 2017, the company was valued at Rs 512 crores.

Suryoday Small Finance Bank Strategy & Growth Plan

Strategy

  • Plans to offer the entire suite of permitted banking products to its customers.
  • Focus would be on key growth markets like Mumbai, Chennai and other existing markets.
  • Rather than be in 25 states in India, the company intends to be in a few states.
  • Expansion from core centres in a hub and spoke approach.
  • Focus on ‘Convenience Banking’ – instead of the vendor or small businessman going to the bank branch, bank representative will visit and transact with him at his home or shop.
  • Near term focus on Maharashtra and Tamil Nadu to mobilise deposits especially as Tamil Nadu has traditionally been a large fixed deposit (FD) market, particularly for bulk deposits
  • Target Segment of Suryoday – hopkeepers, small businesses and affordable home for loans in Rs 10 Lakhs to Rs 15 Lakhs bracket
  • As an MFI, constrains in giving a loan as and when the customer wants. However as a banking institution, customer can be given loan as and when they want.
  • Plans to go public by 2020.

Operational

  • Aims to achieve a loan portfolio of about Rs 1,800 crore by FY2018.
  • Deposits of Rs 700 crore by FY2018, of which Rs 500 Cr will be from the retail segment (below Rs 10 lakhs)
  • 10 Bank branches by March 2017
  • 25 Bank branches by June 2017
  • 90 Bank branches by March 2018
  • Existing 226 Door Step Service Centers to be converted to banking outlets in the next 12 to 18 months
  • A convenience fee of Rs 50 to be charged per customer per month for such doorstep services.

ATM

  • An onsite ATM with every branch, including the branches which are being converted.
  • These will be full-fledged ATMs which will also double up as cash-deposit machines.
  • By the end of March-2018, at least 100 ATMs.
  • However post-demonetization, ATMs not that important.

Business Correspondent

  • Plans for a huge network of business correspondents (BCs).
  • Within three months plan to have at least 20-30 good quality BCs, who will offer doorstep banking services.
  • With every branch company plans to have at least three to five BCs.
  • By March 2018, 1500 to 2000 BCs

Inculcating Banking Habits

As per CEO, Baskar Babu:
“What we want to do first is to inculcate banking habits. We are not really targeting CASA (current account, savings account) immediately. We want to make sure that they get into the banking habit.

So what we will do is, through our bank branches and BCs, we will enable them open an account, help them operate it meaningfully rather than just looking at them only for CASA. Once that happens, I think, CASA becomes a derivative. Once the savings and banking habit is inculcated and when they start transacting they end up having a float (in the account) and it also increases stickiness.

So, our focus is in terms of opening an account for them and making sure that they are comfortable transacting through it. Our focus is equally on mobile banking as well on internet banking. Our focus is in terms of teaching them how to start using mobile banking if not Net banking. And when they start using it, we will try and see if most of their inflows also could be through the electronic (digital) form. When they start transacting, I think savings account balance becomes a derivative.

What I think we should do is help them or enable them do their first transaction and tell them that it is no rocket science and is reasonably safe. With all the security in place, we are going to even help them do mock transactions (without touching their account).

Once they know what it takes to do the transactions, they are at ease and can do it themselves.”

Suryoday Small Finance Bank Technology

Best-in-class technology solutions that are scalable and flexible:
FIS as technology partner;CRM at the forefront of all customer transactions to ensure a unified 360-Degree view.
Tab-Banking for e-KYC based account opening

Suryoday Small Finance Bank Interest Rates

  • Attractive interest rates on deposits up to 9-9.75% for senior citizens for a tenure of 1-2 years.
  • Savings account deposits of up to Rs 1 lakh, the interest rate would be 6.25%
  • Deposits above Rs 1 lakh and up to Rs 10 lakhs the interest will be 7.25 %
  • Deposits above Rs 10 lakh, the interest is fixed at 7%

Impact of Drought and Loan Waiver Politics

Repayment collection has been at sub-50% level in parts of Maharashtra with Amravati being the worst hit with merely 20% repayment collection.
Borrowers made to believe that their loan would be waived off.

Source

  1. https://www.suryodaybank.com/about-us
  2. http://www.financialexpress.com/industry/suryoday-micro-fin-raises-rs-100-crore/310083/
  3. http://www.thehindubusinessline.com/money-and-banking/suryoday-small-finance-bank-raises-rs-158-cr-via-rights-private-placement/article9567244.ece
  4. http://timesofindia.indiatimes.com/business/india-business/suryoday-to-make-convenience-banking-its-forte-says-ceo/articleshow/57638618.cms
  5. http://www.indiainfoline.com/article/news-business/suryoday-small-finance-bank-starts-banking-operations-117013000184_1.html
  6. http://economictimes.indiatimes.com/industry/banking/finance/fresh-trouble-for-mfis-as-drought-hit-karnataka-sees-no-repayment-of-loans/articleshow/57994345.cms
  7. http://www.thehindubusinessline.com/money-and-banking/suryoday-small-finance-bank-expects-lending-to-almost-double-next-fiscal/article9565928.ece
  8. http://www.thehindubusinessline.com/money-and-banking/suryoday-small-finance-bank-likely-to-grow-5060-the-next-couple-of-years-says-md-baskar-babu/article9508281.ece
  9. Image: http://www.financialexpress.com/industry/banking-finance/suryoday-small-finance-bank-eyes-rs-450-cr-net-worth-looks-to-go-public-by-2020-reveals-honcho-bhaskar-babu/529979/

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A Few Last Words

Before making any investment decision, please contact your financial adviser.

I have provided this article for educational purpose only.

I hope you found this article on Suryoday Small Finance Bank useful. If you have something to add please leave a comment in the post. Please feel free to contact me.

Subhodeep Mukhopadhyay

I am a Management Consultant in the Education Sector. In my previous corporate career, I have worked in Banking, Private Equity and Software industry. I am an MBA in Finance/ Computer Engineer and enjoy doing equity research and financial analysis in my free time.

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