AUM growth of small finance banks projected to more than halve in FY2021: ICRA

The growth in assets under management of small finance banks (SFBs) may halve to 10-15 per cent this fiscal and they could require equity infusion of about ₹5,000 crore to ₹6,000 crore to achieve a CAGR of 15 to 20 per cent till 2022-23, rating agency ICRA has said.

“As per a report released by ICRA, the industry is expected to report losses at consolidated level in 2020-21 driven by high operating costs and elevated credit costs of around 3.5 per cent and four per cent,”it said in a statement on Monday.

Supreeta Nijjar, Vice-President and Sector Head, Financial Sector Ratings, ICRA, said SFBs would need external capital not only to manage Covid 19 related credit costs and medium-term growth but also to manage the regulations related to reducing promoter shareholding below 40 per cent.

“At present, eight out of 10 SFBs are yet to comply with the requirement of bringing down promoter shareholding to 40 per cent within five years of commencement of banking operations. Additionally, SFBs are required to list themselves on the stock exchanges within three years of reaching a net worth of ₹500 crore and some SFBs are approaching the three-year timeline in 2020-21,” Nijjar noted.

The agency also said there has been steady improvement in the collection efficiency of SFBs which was up at about 69 per cent in July from 24 per cent in April. They have also been able to resume field activities with the easing of the lockdown.

“Nevertheless, the SFBs’ ability to sustain this trend and improve collections further would be critical for containing the losses,” ICRA warned.

The total asset base of SFBs crossed ₹1,30,000 crore as on March 31, 2020 and AUM crossed ₹90,000 crore with a growth of 30 per cent in 2019-20 as against 41 per cent growth in 2018-19, due to healthy traction on resource mobilisation, it further said.