The operating environment for Bharat Financial Inclusion Ltd (BFIL), formerly known as SKS Microfinance, is changing rapidly as peer microfinance institutions are in the throes of morphing into banks.
As Janalakshmi Financial Services Pvt. Ltd, Ujjivan Financial Services Ltd and Equitas Holdings Ltd become banks, they will have the edge over funding costs and thereby would be able to provide lower interest rates to borrowers. BFIL has already dropped its loan rate to 19.75% earlier this month, becoming the only microfinance company to give loans below 20% globally. But the journey ahead would be tougher as it competes with small finance banks.
Of course, BFIL has time to prepare for the onslaught as these firms will take time to dig in their heels as banks and command access to low-cost resources such as public deposits. Analysts reckon this period to be at least two years. This is evident from expectations of a growth of at least 50% in the earnings per share of BFIL.
On the earnings front, the microlender continues to report strong performance. During the June quarter, its net profit was Rs235.91 crore, a 286% jump from the year-ago period, largely due to a tax write-back. The fact that the growth in assets under management (AUM) came predominantly through loan disbursals and that bad loan ratios remained stable around 0.1%, is reassuring. The scorching pace of loan growth is not entirely on the basis of overleveraged borrowers.
BFIL’s AUM grew 76% while its loan disbursals grew 59% for the June quarter. The gross loan portfolio rose 76% to Rs8,463 crore, excluding data from Andhra Pradesh and Telangana. Loan disbursements increased by 59% in the current period to Rs3,769 crore.
Compare its performance with its soon-to-be-banks peers, and BFIL comes out a winner. In its last quarter as a microfinance company, Equitas Holdings reported a net profit growth of 64%. Its gross loan book expanded 49% while its loan disbursals grew by 29%. Equitas turned into a bank on Monday when it officially started operations.
BFIL shares have risen by more than 50% in the year till date; clearly, investors are brushing off concerns about heightened competition for now.