R Bhaskar Babu of Suryoday Small Finance Bank on the disruption in banking
In an interview, R Bhaskar Babu, MD and CEO of Suryoday Small Finance Bank shared with FPJ’s Jescilia Karayamparambil and R N Bhaskar the journey of the financial institution.
Tell us the journey of your bank
In 2009, we founded an NBFC started with seed funding from a social investment fund Aavishkaar. Coming from financial institutions like Cholamandalam-DBS, GE capital, HDFC Bank and others, I do believe financial support for the bottom of the pyramid is usually sold to — and not purchased by — customers.
We nudged our customers to open a bank account, however small the amount might be. In 2009, the banks were not interested in opening bank accounts for low-value-high-volume customers as they would occupy bank space which put pressure on bank staff.
It was a time when the business correspondence (BC) space was evolving. But it was in no way similar to current times. It used to take 10 minutes for a transaction to go through a BC. And most of the transactions that went through the BC network was remittance business where there was a payout to the BC agent. So, we tried to become a BC but we were not allowed to become BC in 2009. We encouraged some of our customers to become Customer Service Points (CSPs ) for the bank. This would encourage and nudge other customers around to start saving.
So, we gave our customer’s piggy bank boxes and asked them if they could save Rs 20-30 daily. The answer was that it was possible. While the response to this idea was overwhelming, we still managed to distribute 1,500 piggy boxes which was priced at Rs 55 per box then.
It was at that time, we (as an NBFC then) thought we should either become a bank or an agent for the banks.
Even after our customers saved enough money, we were unable to help them open a bank account. This was an unfulfilled promise.
At that point, we never aspired or dreamt of becoming a bank one day. Back then, our net income was Rs 30 crore.
We believe that if our microfinance customers come and tell us that they do not need our loan and that they have saved enough — it is at that point that we would consider ourselves successful. We are still on that journey. The day we are able to achieve that, we can say we have done a meaningful job for our customer base.
We wanted to see if we can make million Indian millionaires (which is Rs 10 lakh). This is possible but the asset has to be built slowly. Every long journey starts with a very small step. We have taken small steps, now we have to see if we have motivated our customers to move up the value chain. This is very much possible.
When the small finance bank space opened up for a limited period, we were still unsure if we would be able to get it. But we attempted it by putting out a business plan. When we go back and look at the business plan, we realise that we have done that meaningfully.
We overachieved in the case of various parameters in our business plan. But one area that we were unable to achieve significantly was turning these customers into truly transactional account holders with the bank.
Now with our small finance bank, we are able to empower our customers with various services that were out of their reach as they were out of the banking system.
How big are you now?
In terms of loan asset size, we are Rs 4,000 crore.
How many people do you employ?
We employ around 4,500 people as of December end 2020.
What are the services the bank offers?
We have started micro home loan, with upper limit of Rs 10 lakh. Anything beyond Rs 10 lakh, it becomes an affordable proposition which is different segment.
We also offer legal advice to home buyers. By providing legal advice, we are making the whole process easy which is a value add that we offer.
In the whole process, the customers should not feel that they are short changed and should instead feel confident.
We encourage our customers to take Pradhan Mantri Jeevan Jyoti Bima Yojan. We do not get any payouts for that but it is more or less like a cost that we incur. We do this mainly because as per our historical data we found that 1 per cent or less of our customers or their family members especially spouses die. Out of the 10 lakh customers, we process close to 7,000-8,000 claims every year. Thus, we encourage them to take the insurance and process the claim and credit their account with Rs 2 lakh. While you cannot mitigate what they have gone through, the financial benefit means a lot to these households.
We are also putting out natural calamity’s insurance for as low as Rs 50. The insurance companies do not give us any payouts for this task but we still do it. The intention is to give all these solutions under one umbrella. So, the customer feels confident.
How many zero-balance accounts or Jan Dhan accounts have the bank opened?
It is a zero-balance account for which we give OD facility and a debit card. We call it the sunrise account. It is around Rs 3.5 lakh as of December. So, it is a Jan Dhan account from a minimum balance account point of view.
What is cost in terms of customer acquisition for the bank?
Our operating ratio to our value of asset size is 5 to 6 per cent (historical number). But given the unit size of servicing our customer, it will be more per unit of loan or saving. This is because the balance of these customers are far less in terms of account.
To meaningful service these customers, we offer doorstep service. This makes the process a lot more expensive compared to doing it through digital means.
Along with this, the BC network is getting wider and wider. There are around 10 lakh CSPs and at that point people can walk in at any point of time.
What has the impact of COVID-19 been?
Business was at a standstill for a period of six months from April to September. After that, it started opening up. At the overall level, the customers did get impacted.
Maharashtra which is our core market did get impacted as people were unable to travel for work. But the bounce back was pretty sharp.
During this time, we realised that for contactless opening of an account, we cannot use biometrics. So, we started opening accounts using iris. These accounts were opened in a matter of minutes and not hours.
During this time, over one lakh of our customers paid us through digital means. But later it tapered off.
Are you looking at any regulator assistance to grow further?
The regulator has been very proactive in engaging with us even before we launched. The regulator helped players in the small finance banking space interact and exchange ideas to improve this segment.
The good compliance in terms of regulation has been very useful for a group of institutions. This is a large financial experiment that the regulator has undertaken by differentiating banks. The more successful we are, it will allow others to come forward to become small finance banks.
Having more and more (small finance) banks will help in serving customers in the holistic manner.
The regulator was more of an enabler. There will be some issues or constraints. But they will get addressed sooner or later.
How much are you planning to raise via IPO?
As per our DRHP, the shares on issuance is 2 crore shares — part will be pre IPO.
This IPO will not only enhance our net worth but also support our growth plans.