Small finance banks serving priority sector profitably: RBI

The newly created small finance banks (SFB) are serving the intended marginalised and under-served people, and doing so profitably, an analysis by RBI officials has revealed.

This category of banks was started in 2017, and a bulk of the entities are microfinance institutions, which converted themselves into lenders, which gave them access to public deposits.

“The SFBs have been provided license with the objective to serve the under-served and marginalised sections of the society…preliminary analysis reveals SFBs to be leading in serving the priority sector,” the paper by Nitin Kumar and Sarita Sharma said.

The study contains an initial assessment of the performance of SFBs for early policy inputs, it said, stressing that its assessment should not be considered as the view of the central bank.

A basic examination reveals a relatively high credit deposit ratio of SFBs and most of them displayed healthy profitability with further improvements in recent quarters, it said.

The study went into operational financials between March 2017 and March 2020 and indicated that bank-level factors like efficiency, leverage, liquidity and banking business are significant in determining SFBs’ profitability during this early period of operation.

It can be noted that the first quarter of the FY22 was a difficult time for many of the SFBs, as the collection efficiencies declined because of the second wave of the pandemic.