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Small finance banks eye premium customers to diversify base

September 26, 2023

Small finance banks eye premium customers to diversify base
Small finance banks are eyeing premium customers, both in terms of income and credit worthiness, to improve profitability through diversifying their client base, boosting customer stickiness and bringing in more high transacting customers.

After the difficult covid period, when SFBs saw ballooning delinquencies and capital shortages, these lenders have since staged a comeback on the back of economic recovery and pick up in credit demand.
 
With listing plans of several SFBs getting delayed due to the pandemic, hit on banks’ performance and weak market conditions, debt capital raising by these banks picked up pace in FY23, with CARE Ratings pegging fresh capital requirement for SFBs at ₹4,000 crore in FY24.
 
Meanwhile, SFBs have also been aggressively building their liability profile through expanding the profile and stickiness of retail and small business deposits, offering industry best interest rates on savings and fixed deposits, and growing their secured portfolios to reduce cost of funds and boost profitability, according to analysts.
 
Those with high microfinance exposure have been increasing the share of high credit score customers through personal loans, financial institutional group (FIG) lending and affordable housing. On the liability side, especially players with no microfinance exposure such as AU SFB and Capital SFB, have been looking at high-income segments through credit cards, premium offerings, high interest rates and other banking services such as insurance and wealth management.
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