Mumbai: Jana Small Finance Bank on Wednesday announced the commercial launch of its banking operations, the last microfinance company to convert itself into a small finance bank (SFB), three years after the Reserve Bank of India (RBI) gave its in-principle approval.

The Bengaluru-based small finance bank, which was earlier called Janalakshmi Financial Services and weathered huge losses on account of demonetization, said it is confident of turning profitable before the end of fiscal year 2019.

“Because of the delayed launch, the bank has lost many customers. I don’t see a challenge on how we will grow, even though we are last, because the market still is underbanked. We have 45 lakh MFI (microfinance institution) customers, 600 store fronts and 15,000 employees. Jana was the largest MFI. It should be able to churn quickly," said Ajay Kanwal, managing director and chief executive officer, Jana Small Finance Bank.

Jana was the worst affected during demonetization when it saw its asset quality slip, leading to capital erosion. The MFI had reported losses to the tune of 2,504 crore at the end of March 2018.

Even as it received its final licence in April last year, Kanwal said it waited to complete the 2,000 crore capital infusion before it started commercial operations. The bank’s capital adequacy ratio at the end of March 2018 stood at 35%.

Rating agency Crisil had recently downgraded its ratings on the bank loan facilities and debt instruments of Janalakshmi Financial Services because of losses made by the company as a result of lower disbursement and weak collection efficiency.

According to Kanwal, the bank has learnt its lessons and will continue to improve its risk management processes.

“The big challenge for a bank with a stable set of earnings, (is that) you need to build a stable set of assets. Even though Jana has losses, it has a good ability to execute on the loans. But it led to concentration. When things went bad it became difficult to control it. How do we build a sustainable set of earnings? Converting our contacts into a relationship and raising liabilities will be the other key challenges," Kanwal said.

Jana Small Finance Bank is also looking to list by March 2021. Over the next three years, Jana will aim to diversify its loan book with 50% accounting for individual loan business, 20% agriculture loans and 30% small and medium enterprise loans.

In September 2015, RBI had granted in-principle approval for 10 small finance bank (SFB) applicants including Au Financiers, Disha Microfin, Equitas Holdings, ESAF Microfinance, Janalakshmi Financial Services and Ujjivan Financial Services.

The main purpose of having SFBs is to expand access to financial services in rural and semi-urban areas. These banks can do most things that a normal commercial bank can do, but at a much smaller scale.

It will offer basic banking services, accept deposits and lend to underserved sections of customers, including small business units, small and marginal farmers, micro and small industries, and even entities in the unorganized sector.

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