Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of the Economic Times – ET Edge Insights, its management, or its members

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India’s pioneer small bank, Capital Small Finance Bank Limited, has expanded significantly since it opened for business as a local area bank (LAB). In an interview with ET Edge Insights, Sarvjit Singh Samra, MD and CEO of Capital Small Finance Bank Limited, discusses the difficulties confronted by small finance banks, the impact of technology, and more.

What is the distinction between a small finance bank and a commercial bank?

Small Finance Banks are scheduled commercial banks that differ from Universal Banks in two key parameters:

  • At least half of the loan portfolio must consist of loans with ticket sizes of up to Rs.2.5 million
  • 75% of the loans must go to the priority sector from the small finance banks

Aside from completing these requirements, there is no such difference between a universal bank and a small financing bank.

What are the big challenges small finance banks are facing, and how can they be fixed?

  • Building a Liability Profile is a challenge as it depends on customer mindset given the low-ticket size liability, customer base and ability to gain customer trust.
  • Asset diversification: Venturing into newer products will require new skillsets and underwriting processes. New entities may face asset quality issues due to limited experience.
  • Human capital: Competing with universal banks for talent may also be a challenge.
  • Adhering to Regulatory Guidelines: Players with non-banking backgrounds, need to adhere to stricter regulatory guidelines.
  • Foreign shareholding: Players with large foreign shareholdings need to raise a high amount of domestic equity to meet minimum domestic holding requirement.

Entities already having banking experience and systems and processes in place are expected to do better.

What impact has technology had on the banking sector?

The banking sector has experienced a tremendous technological revolution that has paved the way for creating newer, better opportunities for its customers. The impact of technology on the banking industry is manifold and can be witnessed with the speed at which banks operate in the country today. Here are some positive impacts of technology:

  • Impact of new age technologies: New age technologies such as Artificial Intelligence (AI) and Machine Learning (ML) have radically shifted the way banking works today.
  • Changing customer profile: The changing profile of banking depends a lot on the digital ecosystem around them to meet their needs, to provide an omni-channel digital experience.
  • Mobile banking: The changing customer profile inclines towards bringing both physical and digital worlds closer, and this is impacting the finance and banking sector favourably.
  • The emergence of new business models: The aftermath of the pandemic, however, resulted in new beginnings in the form of huge digital transformation and newer business models to be explored for the banks.

How does Capital Small Finance Bank establish a distinct brand identity among customers?          

Having started as a local area bank (LAB) in 2000, Capital Small Finance Bank Limited (Capital SFB), has come a long way as India’s first Small Finance Bank (SFB). Culture of transparency and deep understanding of the target customer segment, developed over the years has helped us in steering our steady growth. Our learning as LAB, our IT backbone, prudent risk management framework, our human resource and codified processes & policies aided us to be amongst the leading SFBs in terms of CASA ratio, cost of deposit, asset quality and secured diversified advance portfolio.

Capital Small Finance Bank is working hard to make its vision statement, which focuses on customer service, innovation, and technology, and a long-lasting and dependable relationship with the local community.

The bank is a socially responsible firm whose business approach is based on financial inclusion. The bank is expanding its reach with an emphasis on offering affordable world-class banking services to the masses, as well as a comprehensive array of financial services to its rapidly rising clientele, all under one roof.

Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of the Economic Times – ET Edge Insights, its management, or its members