Kolkata: AU Small Finance Bank, which started its banking journey six summers ago with 95% secured loan assets and without any microfinance lineage, has now decided to explore the so-called bottom-of-the-pyramid customer segment. The lender, while planning its own microfinance loan product, is also said to be exploring the acquisition route which would help it with a ready microfinance platform.
“We remain open to the idea of inorganic growth,” executive director Uttam Tibrewal told ET, adding: “However, I can’t comment on any media reports that suggest we are in discussion with somebody for a merger. We discuss so many things at our small finance bank forum.”
The management of AU believes that foraying into microfinance, which is essentially offering small loans to economically weaker and largely under-banked customers without collateral, is a natural extension of its business strategy.
Tibrewal said that about 70% of AU’s lending is in the semi-urban and rural areas with over 90% priority sector portfolio. About 30% of its banking touchpoints are in unbanked rural areas. The bank has 1,038 banking touchpoints overall including 476 branches. “Therefore, getting into microfinance is a natural progression of our journey,” he added. “Microfinance is a settled product now. We have a stable deposit flow to explore this segment,” he said.
Unsecured microfinance loans are typically known for high returns and robust loan repayment behaviour. The interest rate on loans now hovers between 22% and 26%, while the sectoral repayment rates returned to the 98-99% levels after the blip during the Covid period.
“We are building a microfinance product internally,” said Shoorveer Singh Shekhawat, head of swadesh banking, government business and wholesale deposits at AU Bank. Microfinance will be part of AU’s “swadesh banking” initiative, which aims for targeted attention to its semi-urban and rural businesses.
The bank’s gross advances stood at ₹63,635 crore at the end of June with vehicle loans accounting for 33% of it. Secured business loans account for 30% while commercial banking contributes 21% of the loan portfolio.
