NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Thursday, September 24, 2015

Small Finance Banks (SFBs) will shift the focus of the microlending business away from the dedicated micro finance institutions (MFIs), domestic rating agency India Ratings said today. 

"The microfinance business will now be dominated by small finance banks (SFB) which will bring down systematic risk but at the cost of lower returns," it said in a note issued a week after the RBI granted in-principle nod to ten entities for setting up SFBs. 

It is estimated that the ten entities will raise up to Rs 20 billion in equity till FY18. 

The select entities include eight already operating as MFIs, a local area bank and one commercial vehicle financier. SKS Microfinance, one of the biggest microlenders, has not been granted approval by RBI despite applying. 

India Ratings said among them, the eight MFIs and Bandhan, which got final approval from RBI in June to launch commercial banking operations, account for 54 per cent of the gross loan portfolio of NBFC-MFIs.