Mumbai: Guwahati-headquartered RGVN Microfinance (North East) Ltd, which is awaiting the final approval to open its small finance bank, expects to start operations by 15 January, a top company executive said.
RGVN is the only microfinance firm from the north-east to receive an in-principle approval to set up a small finance bank. The microfinance firm intends to add 32 more branches to its current tally of 132 branches by March next year. All branches will be converted into full-fledged bank branches only by fiscal 2018.
Currently, RGVN operates in Assam, Arunachal Pradesh, Meghalaya, Nagaland, Tripura and Sikkim, and plans to open branches in Mizoram.
“Network and road connectivity will be a big challenge for us as we operate in the north-east part of the country. We will continue to focus on micro -finance segment in our banking journey,” Rupali Kalita, managing director of RGVN, said over the phone. The company, which had 613 employees as of 30 June, is planning to hire about 230 more, of which 200 will be for branches and 20-30 for the middle and senior levels, she added.
As microfinanciers turn into small finance banks, raising deposits will be crucial as it brings down the cost of funding. Kalita declined to answer a question on how RGVN plans to grow its deposits.
For small finance banks, 75% of the loan portfolio has to go towards the priority sector and at least half of the loans will be below Rs25 lakh.
Given RGVN’s focus on the microfinance segment, it will have the scope of selling priority sector lending certificates (PSLC). The PSLC is a short-term accounting instrument used by banks to cover shortfalls in meeting priority sector norms. The buyer would pay a fee to the seller which will be market determined and it will have a standard lot size of Rs25 lakh and can be purchased in multiples thereof.
“PSLC will be one of the possible means of generating income for them since their lending is structured in a manner which is tilted toward microfinance borrowers,” said Ratna Vishwanathan, chief executive officer of Microfinance Institutions Network (MFIN).
Gross loan portfolio of RGVN Microfinance stood at Rs523 crore as on 30 June, up 131% from a year ago.
Earlier this month, the Reserve Bank of India issued operating guidelines for small finance banks which stated that the banks need to maintain a capital adequacy ratio of 15%. Both tier-I capital, or core capital, and tier-II capital will have to be 7.5% each. Capital adequacy ratio is a measure of a bank’s financial strength, expressed as a ratio of capital to risk-weighted assets.
The bank licence holders must start banking operations latest by March 2018. So far, only Capital Small Finance Bank and Equitas Small Finance Bank have taken off.
Disha Microfin Pvt. Ltd, Ujjivan Financial Services, Janalakshmi Financial Services Ltd, AU Financiers (India) Ltd, ESAF Microfinance and Investments Pvt Ltd, RGVN (North East) Microfinance Ltd, Suryoday Microfinance Pvt Ltd and Utkarsh Micro Finance Pvt. Ltd are all in various stages of readiness for their small finance banks.