Small Finance Banks Gear Up for Major Growth Surge

Small finance banks (SFBs) are forecasted to achieve a 16% growth, crossing Rs 2 lakh crore in advances this financial year. This growth is driven by diversification beyond microfinance and regulatory guidelines. SFBs are focusing on non-microfinance segments like mortgage and vehicle loans to expand their portfolio.

Small finance banks (SFBs) in India are poised for significant growth, with advances expected to surpass Rs 2 lakh crore this fiscal year, according to a recent report by Crisil. The anticipated 16% increase is driven by diversification into non-microfinance segments alongside a recovery in microfinance loans.

The report highlights the growing importance of segmental diversification, a strategy initially adopted by SFBs during their transition from microfinance institutions. Crisil notes that this approach remains crucial as SFBs aim to minimize asset quality issues and comply with RBI guidelines on non-performing assets.

As SFBs continue to evolve, non-microfinance loans such as mortgages and vehicle loans now make up 67% of their loan portfolio. Meanwhile, retail deposits, which constitute over 70% of overall deposits, are increasingly shifting towards term deposits. Notably, AU Small Finance Bank is set to transition to a universal bank.

(With inputs from agencies.)