Small Finance Banks Need To Widen Deposit Base By Rs 60,000 Crore In Two Years, Says India Ratings

Small finance banks have to garner at least Rs 60,000 crore in deposits over the next two years to support an asset growth of 30 percent and to maintain borrowings at 25 percent of liabilities, says a report.

Total deposits of small finance banks jumped 130 percent in fiscal year 2019, leading to an increase in their share of deposits to 59.6 percent of non-equity liabilities in FY19.

"Small finance banks need to ramp up their deposit base quickly to replace grandfathered loans and gradually build granular deposits," India Ratings said in a report on Thursday.

The agency expects the share of granular deposits to continue to increase over the medium-term, aided by an increase in branches and banking points (to about 35,00 at end-FY19) and increase in deposit rates.

Granular deposits, which are current and savings deposits and retail term deposits, accounted for 48 percent of total deposits in FY19 as against 42.5 percent in FY18.

It said although the low-cost CASA deposits increased 76 percent to Rs 9,760 crore in FY19, the ratio has seen a decline to 19.2 percent, as traction in term deposits increased and savings deposits were converted to term deposits owing to the high rates offered by SFBs.

Total borrowings of small finance banks declined steadily over the last two years to Rs 31,500 crore in FY19 from Rs 34,000 crore and Rs 36,000 crore in FY17, with a substantial, albeit expected, decline in bank borrowings and debenture funding.

Given the overall liquidity stress in short-term capital markets, elevated risk perception and risk aversion, especially for credits rated in the A category and below, small finance banks might face challenges in tapping the capital markets, the report said.