How has the small finance bank ecosystem changed after #Covid19? Is turning into a universal bank the only option for any SFB?
In conversation with Ujjivan Small Finance Bank’s Ittira Davis.
In conversation with Ujjivan Small Finance Bank’s Ittira Davis.
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00:00 Hello and welcome to BQ prime, you are joining us on another episode of bankable, a show
00:26 where we discuss how the operating environment is looking to the bankers who are in the system,
00:32 what is it that they are looking at as opportunities and what are some of the challenges that they
00:36 are trying to overcome to achieve their goals. And today to discuss this further we have with
00:40 us with us Mr. Indra Davis, the MD and CEO of Ujjain small finance bank. So Davis, thank
00:45 you so much for joining us on this conversation. I just wanted to start this conversation with
00:50 the idea of a small finance bank. This was brought in as a diversified sort of style
00:58 of banking, a differentiated style of banking along with the payment bank system. Now, when
01:03 we look at the definition of what a small finance bank is, it is targeted specifically
01:08 towards getting to the bottom of the pyramid or at least mid markets where your universal
01:13 banks probably do not reach as well. To your mind, how has this evolved over the years
01:20 in Ujjain itself as well as the whole system? How has the small finance bank ecosystem evolved?
01:25 It's good to be here with you at BQ Vishwanath. It's been a while. So, you know, a very good
01:31 question because I think what has happened is the small finance banks were brought on
01:39 for a differentiated license because they felt as you rightly said, the bottom of the
01:43 pyramid, the people who are not included in the financial system were not being given
01:48 a chance. So, this was a way that the RBI felt we could be able to address them directly.
01:53 So, I think in terms of the objectives which it was set up for and most of us have been
01:58 in operation for now six or seven years having started in 2017, 2016, 2017. And all of us
02:08 have been around. What is important and I just mentioned this as a side that, you know,
02:13 we had two devastating years of COVID and all 10 of us who were given licenses in 2015
02:20 towards the end of 2015 and started operations in 16, 17 have come through COVID. So, as
02:25 a business model, it has done very well in terms of the business structure itself. We
02:30 are all around still doing what we have set out to do. And I think if you look at what
02:35 we have done, I think we have punched above our weight. We have done fairly well on that
02:42 and have offered services across the board and the 25% that we were required to open
02:49 branches in the rural unbanked areas, that has also done very well. And overall, I think,
02:55 you know, it's a good proposition. And having said that, you know, it's not that we have
02:59 just kept it to the basics. Many of us have gone into digital and I think that digital
03:05 offering to the bottom of the pyramid is definitely going to make a difference. I think that is
03:10 quite a significant part.
03:12 Okay, let me break this up into different parts and different questions. First, let
03:16 me tackle COVID. Now, this was two years of an event that nobody could have predicted,
03:20 nobody was actually ready for a pandemic where everything sort of shut down. How has a small
03:26 finance bank ecosystem as well as Ujjain, how have you managed to sail through this?
03:32 Because a lot of your business depends on reaching out to people, talking to people,
03:37 because a lot of you were MFIs and you had a direct connect with your borrowers. How
03:42 did you manage to sort of sail through this period where you just could not meet your
03:46 borrower?
03:47 Yeah, that was a difficult period. You know, we had our branches because we are essential
03:51 services. The branches were open, but of course, in certain areas, which were contained zones,
03:56 we had to close. But otherwise, we kept the branches open. Wherever customers came to
04:01 us, we addressed their issues. But we couldn't have the usual center meetings in the field,
04:05 which is the core to microfinance and most of the small finance banks, microfinance is
04:11 a large part of their business. And for us, it is. So to have that monthly connect with
04:17 the customer that was lost, not across the board, but by and large, you know, because
04:22 the customers came to us, we addressed them and took care of their needs. Some of our
04:27 field officers were trying to speak to the customers. And that is really where you know,
04:32 the virtual connect with the customer started through WhatsApp, through regular calls, etc.
04:38 But then many of them were affected, you know, some of them had to leave and move on because
04:43 they couldn't meet, make ends meet. And the economic situation was such that they had
04:47 to find or go back to their homes or wherever else, if they were, you know, moving around
04:52 and working in other places. So all of that, you know, when you add it all up, it's a significant
04:59 impact which it had. So those two years 2021, were very difficult years for the whole industry,
05:06 and more so for those who were catering to the bottom of the pyramid. So I think that
05:11 has to be understood in the context of how things turned out. And then you have our regulatory
05:16 environment which requires us to recognize loans as they turn bad. So that recognition
05:22 took place. But, you know, fortunately, COVID came to an end, or at least it tapered away.
05:29 Indian economy did very well. And I think that is really the crux of the turnaround.
05:34 So I think, you know, when you look back and see how did it play out, the fact that the
05:38 economy was able to bounce back, helped us. So just like the bottom of the pyramid got
05:43 affected when COVID came, they were the first to bounce back, because the people in other
05:49 industries were still wondering, should we invest? Should we put money into those sort
05:54 of projects which requires, you know, capital investment? And they said, no, we're not sure.
05:59 So they postponed those investments, which is actually some of the effects of which are
06:03 playing out today and the inflationary front, because demand is picked up much faster than
06:08 supply. Supply is trying to catch up. But, you know, coming back to the bottom of the
06:11 pyramid, the turnaround helped them. And that is what you're seeing in our numbers. You
06:16 know, 21-22 was a difficult year for us. But 23, 22-23 was spectacular. The recovery has
06:22 been fantastic. And I think, you know, that talks for itself.
06:27 Isn't it also a fact that a lot of your borrowers really don't have another option? I mean,
06:31 their livelihood depends on the business that they do, right? And postponing or maybe, you
06:36 know, waiting and watching how the situation evolves is not really an option for these
06:40 people. But then how does a lender manage a business where a large part of your borrowers
06:46 are dependent on how daily business works? And there's no real sort of margin of safety
06:52 that they carry with the business. How do you deal with that?
06:55 Yeah, this is where I think, you know, for us, the people on the ground make a big difference.
07:00 Yeah. Because what happens is that they understand the market and we are in different markets
07:05 and different things tick in different markets. So, you know, trying to pass, you know, sort
07:10 of standard policy from the head office in this situation is very difficult because we
07:15 are in 25 states and each state and each part of the state operates differently and recovery
07:22 is at different phases, especially in this situation. So, what happens here is that we
07:27 get the feedback from the ground and we have to take decisions based on that. And that
07:31 feedback is very important. So, the feedback we were getting is that there were pockets,
07:36 initially some pockets, the pockets increased and then it was a total all-round recovery.
07:41 So, we allowed them to, you know, within the parameters that we have to reconnect and we
07:47 initially started dealing with the existing customers. So, who have a track record with
07:52 us and if that track record was good and they came and said, okay, we would like to do something
07:57 to reactivate, we used to give them the go ahead and they used to do it. So, all the
08:01 existing customers got priority because of the situation. Then little later we started
08:06 adding new to bank customers and that is how the business built up. And, you know, in terms
08:12 of disbursements, 22-23, we had 20,000 crores of disbursements, which was by and large the
08:17 highest that we have ever achieved. And I think that is, you know, talks for itself
08:22 in terms of the numbers. So, coming to the post-pandemic period, now
08:28 Ujjivan as an entity had some leadership, you know, changes, you had to come in back
08:35 and start leading the bank as its MD and CEO. Are we past all of those sort of periods of
08:42 slight volatility? Are we over that now? Yeah, I would say, you know, definitely I
08:46 think that situation is behind us. It was partly affected, I said, by the COVID conditions.
08:53 Those things are behind us. The management is stable, the board is very stable. And,
08:57 you know, there is evidence of that confidence, even the regulator who had a representative
09:03 on our board a few months ago withdrew the representative because they also feel that
09:08 the situation has come back to normal and has stabilized. So, all in all, I can tell
09:12 you is that, you know, on that aspect, the stability has returned. And obviously, such
09:17 things reflect in the numbers. That is what you are seeing as we go forward.
09:21 So, one of the pointers during that time that was mentioned was the governance angle as
09:26 far as managing the bad loan portfolio is concerned. What has changed materially when
09:30 you are underwriting a loan and then monitoring that loan? What has changed at Ujjivan?
09:35 The underwriting of the loan, you know, we learn from circumstances. And we have, of
09:41 course, the textbook which is there. But the practical aspect of it comes along when there
09:47 are situations. And, you know, the COVID situations taught us a lot about that. And, you know,
09:53 we have brought that into play in our decision making. And also, we are looking at different
09:59 industries in different ways because each of them has their own dynamics and they need
10:04 to be understood. So, that is something that we are brought in. And also, you know, previous
10:08 to COVID, collection was done by our own staff. Because the numbers were really fantastic
10:16 in terms of the NPAs. Below 1 percent, you know, used to be the situation before COVID.
10:22 You may be thinking that we are dealing with the bottom of the pyramid. But the numbers
10:26 are fantastic, you know, so talk for itself. So, when you look back at the COVID situation,
10:32 what happened there was that, you know, the numbers, you know, started compounding. And
10:37 we had to bring in resources from outside. So, that is something that we have understood
10:42 that we may need to know, do from time to time, completely different. We have learned
10:46 how to do that. And we have learned to do that very well. Because our story about the
10:51 recoveries is quite, you know, very spectacular or very special in the industry. And that
10:59 is how we managed an outside resource. At the top, our people are all, you know, our
11:04 own on-role employees. The people in the field who may be doing that are off-role, but they
11:10 are managed by our own staff. So, to guide them to make sure that they follow the guidelines
11:16 and all that, we make sure it's handled by our own staff. So, a combination of this is
11:20 very good.
11:21 When it comes to small finance banks in general, there is this expectation that you'll need
11:28 to grow at 35-40 percent because that's the only way it makes sense, considering that
11:31 your size is smaller than a lot of other universal banks in the system. 40 percent is the minimum
11:37 asked that a lot of analysts point out. Some of your peers are growing at that pace. To
11:43 your mind, is there such a thing as ideal pace or is it just whatever fits your business?
11:47 Yeah, it depends on the circumstances because, you know, you have had two years in COVID
11:52 when you didn't grow. So, growing at 35-40 percent as a catch-up is quite possible. So,
11:59 that is a sort of one-off situation. An ideal thing of an ongoing normal environment, what
12:05 is that, that each one has to decide. But to me, I think a 30 percent growth for a small
12:11 finance bank, which is gaining ground in these years is good as the economy grows. Now, if
12:16 the economy is not growing and you're growing, then obviously there may be certain risks
12:20 you're taking. So, as the economy is doing well, I think growing at that pace is reasonable
12:26 and is something that you can accept if you have got all your other fundamentals correct.
12:31 Because that is very important. The fundamentals and everything else has to be in good stead.
12:37 How closely is the regulator involved in all of this? Is there, because, you know, this
12:43 was the regulator's idea, right? The idea of a small finance bank came from the RBI.
12:47 It was from an independent report that was constituted by the RBI. And then they gave
12:52 out the licenses. How has the regulatory environment been for you as a lender? Is it one of fostering
13:01 growth or is it, okay, we've given you this opportunity, but you better do a good job,
13:05 otherwise we're shutting it down. Is that the kind of approach that the RBI is taking?
13:08 No, I think the RBI has been very supportive and at the same time, you know, following
13:12 the regulations because, you know, whatever is there for the universal banks, by and large
13:17 applies to us, except for those areas where we have got special regulations, those apply
13:22 over and about the universal bank. To that extent, you know, the regular inspections,
13:27 the regular reports that we send, the dialogue that we have with the RBI is very similar
13:32 to what we have with the universal banks. I think to the RBI, this is, you know, something
13:38 which is succeeding, which is doing well. If you look at all the numbers that we have
13:43 by way of customers that each of the, as a small finance bank industry, we are doing,
13:49 I think we are punching above our weight and I think that confirms to the RBI that, you
13:54 know, we are doing what we are set out to do. So I think all in all, it's a supportive
13:58 environment, but at the same time, we have to follow the rules, like the 25% rural unbanked
14:03 and things like that. These are all adhered to and I think, you know, we have a regular
14:08 dialogue with the RBI as an association and individually and I think, you know, these
14:13 things are all addressed in those discussions. The reason I bring this up is because, technically
14:17 your cousins, the payment banks have not had that much of success. You know, there's one
14:22 payment bank that is actually doing reasonably well and even they are talking about converting
14:27 it to a small finance bank. So this differentiated banking idea, can a bank exist solely on liabilities?
14:36 Is that something that's even a reasonable business model?
14:39 I mean, I haven't checked it out as a banker, but yeah, looking at, you know, what the response
14:46 is from the other payment banks or from the payment banks, I think that's a little bit
14:50 of a challenging model. So maybe one or two can work with that model, but as a licensing
14:58 condition is, it's a difficult model to be able to achieve. Unless you have, you tie
15:03 up and have partnerships and you work with others, because I suppose there are different
15:07 ways to approach this, but in the normal way in which you do the banking operations, it
15:13 will be challenging.
15:14 I want to dig a little bit deeper about this microfinance business, right? You were originally
15:19 just a microfinance lender, you sort of developed other businesses alongside it and now your
15:24 book is about 60-40, 70-30?
15:26 No, it's 70-30.
15:27 70-30, right. And what is your long-term goal there? But how far do you think your microfinance
15:33 business will need to shrink to accommodate for the rest of the businesses?
15:36 Yeah, I mean, our three-year objective is to make it 60-40, 60 microfinance and 40 all
15:41 the other, all secured lending. So that we have a 60-40 secured and I mean 40% secured,
15:48 60% unsecured. And then it's for the board to decide whether you want to go to 50-50,
15:53 because 60-40 is much better than 70-30. And having said that, you know, each business,
15:59 if we know how to manage it and understand the risks, you know, whether it's secured,
16:05 unsecured, can be managed. Sometimes the, I mean, having been in banking all these years,
16:10 the secured, you know, part of it is really not that secure, secure when you come to the
16:16 final analysis of it. So on paper, it looks secure. So I think, you know, if the dynamics
16:22 of the unsecured business is well understood, if you are able to manage the risks, and if
16:27 you have to mitigate those risks, I think that is very, that is a good model to have.
16:32 So perhaps 60-40 is good, perhaps 50-50 is needed. I don't know. But we are focusing
16:37 on getting to 60-40 in three years time.
16:41 Okay. What is it that's going to fill that 40? I mean, is it largely, you talk about
16:48 unsecured, but is that where you want to grow further in the other unsecured businesses?
16:52 Or do you think that housing is also an important part of it all?
16:55 Yeah, for us to be able to get to 60-40, the secured businesses have to grow faster. And
17:01 here housing is doing extremely well. Because last year, we went back to the drawing board
17:07 and we re-looked at our housing business. And we have now started putting in place something
17:12 called asset centers across the country, especially in the urban areas. So we're going to have
17:18 about 16 or 17 of them during this financial year. So that allows us to grow the housing
17:24 book a little faster. Together with that, we are now in the process of re-looking at
17:30 our MSME business, how to relaunch that in a way so that it has a longer term growth
17:37 perspective. So that we will do in second half and it will be fully operational next
17:41 financial year. When that comes in, MSME will contribute. So right now, housing is contributing
17:46 about 15%. MSME is slightly less than 10. And we have now also started, we have launched
17:53 on a test basis, our vehicle finance and also goal loans. We are late entrant in goal loans.
18:00 But we have found that many of our customers, especially in the microfinance area, are looking
18:05 to goal loans and they're going to other banks for it. So why not, and many of them are very
18:09 good customers. So why not try and offer them what they are looking for. And that way they
18:14 stay with us for a longer period. When I was speaking with a prominent goal loan lender
18:20 as part of the show, their approach was that, okay, a lot of banks don't really know how
18:26 to do this business. They think that just collecting the gold and giving people money
18:30 is the business, but that's not it. You need to have a service model that fits the customer.
18:37 You need to have a dedicated staff that knows how to handle the goal loan. How much of an
18:42 investment is it as a lender when you're starting out on that place?
18:47 See in a way, some of those things you mentioned like knowing the customer, managing the customer
18:52 is already there when we are talking about existing customers. When it comes to new customers,
18:57 we have to learn to see who they are and understand them. But the CRO or Customer Relationship
19:04 Officer which we have is focused on understanding specific needs. It's not like a commodity
19:08 operation. So each customer, although is unique, we try to understand and build a relationship.
19:15 But that's the longer term objective. So to that extent, that is a given investment in
19:19 any business that we do. And to that extent, whether we go into gold loans or not, we are
19:24 doing it. Now some of the systems that we have, the valuation, the storage and all of
19:28 those sort of things requires something very unique for gold loans. Now if you're going
19:33 to get into it and going to stay into that business for a longer period, it makes a lot
19:38 of sense to invest into that. Initially, yes, it is a cost, but in the long run, it will
19:43 help the business to grow and pay for itself. Okay. I want to touch a little bit about the
19:49 liability side of the story now. So as a lender, your business is a high cost model because
19:54 you naturally have to pay a little more to the depositors than what your universal peers
19:58 would be paying. How has the current system affected the cost structures for you, for
20:05 Ujjain? Because we are in a rising interest rate, well, peak interest rate scenario at
20:10 this point in time. But you still need to give at least 100-150 basis points more than
20:14 the public and private sector banks out there. How has that changed the cost structure for
20:19 you? I think, you know, when we started as well, you know, the fact that we were coming
20:24 in as a new breed of banks and we had this small thing under our name, which we have
20:30 to keep as far as regulations are concerned, put us, you know, slightly on the back foot.
20:35 So as small finance banks, we were always paying slightly higher rates than the universal
20:39 banks and the private banks and the nationalized banks who are here. So that has been the,
20:44 the situation from the very beginning. Now, fast forward to this financial year or the
20:50 last financial year when interest rates started rising. So that was for many of us a new situation
20:57 in the current context of the small finance banks. So, you know, some of us took the decisions
21:02 that this interest rate scenario was here to stay for a while. It's not just a three,
21:08 six month situation because of the post-COVID inflationary trends. So we pitched ourselves
21:14 according to that. So that was the situation from about, I would say, last September till
21:21 about the time, you know, the announcement was made about the HDFC merger. And also the
21:30 larger banks started finding that deposit mobilization was getting difficult because
21:35 RBI was taking liquidity out of the system. So then the differential started narrowing,
21:41 you know, and I think now we have a situation where the small finance banks and the private
21:47 banks, especially the smaller ones, have to be on the lookout for getting those deposits.
21:53 Now, for us, deposits and interest rate per se are not the only things. We pride ourselves
21:59 about our service. And of course, every bank will tell you that service is the differential.
22:03 That's going to be our next point. And it is, it is, it has to be. Because otherwise,
22:08 what is it? You have a choice of 10 banks and you can go to any one of them. So at the
22:12 end of the day, the service, so, you know, small finance banks started this whole thing
22:16 of coming to the doorstep and doing your banking. You could open the account, you could call
22:20 the banker to your doorstep. As far as private banks are concerned, or, you know, many of
22:26 the others, this is only provided, if at all, to high network customers. Now, for us, anybody
22:31 can, a senior citizen who's not unable to come, even anybody for that matter can request
22:37 that you come to the doorstep and do that. And we were doing that in a way, when we had
22:41 these center meetings, because we were meeting the customer, not at the branch, at a place
22:45 close to them. So, a kilometer here or there going to their doorstep was doable. So that
22:52 is the type of service we are delivering in terms of opening the accounts. Now, as I told
22:56 you, we are, you know, on the verge of this digital turnover or changeover. One of our
23:02 competitors is offering a 24-hour digital support. We are also going to be doing that
23:08 starting October. And then by next financial year, it will be across the board for all
23:13 customers. So that, I think, is a quantum leap, where you are combining, you know, at
23:19 the bottom of the pyramid, the type of service. On the liability side, mind you, we give this
23:24 service across the board. Our customer base is not just the same as the asset base. Every
23:29 customer, even a high net worth customer, can be our customer. Because there is always
23:33 something that is unserved or underserved. So, some of them may prefer our higher interest
23:40 rates. Some of them may be looking for better service. All of those. So, I think, you know,
23:45 we are able to provide that as a group. And some of us may be better than the others.
23:51 But I think that is a real differentiator. And going forward, that will eventually give
23:58 the direction in which whether interest rates will narrow or stay apart or grow further
24:03 apart. Because there is a scramble for deposits right now. And I think in the next three to
24:09 six months is going to be the definite period when this is going to be a very tough situation.
24:14 And we are closely watching that as it evolves. So, among the private sector space, at least,
24:21 you know, a lot of hiring happens on the customer service, H&I customer service. Now, as you
24:27 said, any customer is your customer, at least on liabilities front. How do you offer that
24:34 kind of a very personalized customized service? Do you also make those high profile hirings?
24:39 Because for a bank of your size, I don't know how much sense it makes business wise to hire
24:43 that kind of staff. No, we have a combination because first and
24:47 foremost, you know, any institution, the people there have to understand the ethos and the
24:52 culture of the institution. Because, you know, just hiring and sending them into the field
24:56 is not going to get the result. So, you have to be able to communicate what you stand for
25:01 and how the overall thing is. So, we have a combination of people from outside and from
25:06 within Ujjain, who are now addressing because we have relationship managers for our high
25:11 network customers. Because their needs are slightly different and we have relationship
25:16 CROs for our, you know, microfinance customers. So, customers requirements are looked at in
25:23 a way that, you know, these type of customers need these services. Others may not require
25:27 all of them. So, we need to tweak some of these. So, that is how our product managers
25:34 in the liabilities team, they are looking at that, trying to understand what these customers
25:38 need and then trying to make sure that we address those broad, you know, business groups
25:44 that we have or customer groups that we have for these businesses. So, that is the way
25:48 we do it. Even we hire from outside, we hire from, you know, many of them hire from us,
25:54 we hire from them, but all of them have gone through training and, you know, induction
26:00 program where certain of our value systems, our culture is all embedded and imbibed by
26:06 them and then they go into the field. So, it is a combination of those effects. So,
26:10 I think, yeah, I mean, we will take from the private banks, nationalized banks, they will
26:15 take from us, this is an industry which in this business is going to go back and forth.
26:20 But those who join Ujjain have to know the Ujjain culture as well before they go out
26:24 into the field and talk to customers. Talking about the reverse merger now. So, that
26:30 is something that was announced last year. We are still in the process of merging Ujjain
26:34 financial services within the bank. Practically speaking, I understand the tax benefits and
26:42 the holding company discount, you know, working out for shareholders there. Practically, what
26:48 does it change for the bank? Does it change anything at all?
26:50 No, it doesn't change anything. The only thing is that now instead of one shareholder holding
26:55 about 73-74% of the shares, which is the holding company, the shareholders of the holding company
27:02 become more diversified. So, that is the only main change. As far as business is concerned
27:09 and running of the business, there is no change. Because the holding company is not into any
27:14 day-to-day operations. It only has the shares of the bank as its main holding and some investments
27:20 which they have made. But otherwise, there is no, you know, it is not that they are doing
27:25 something which we need to absorb. So, it is just, it makes a lot of sense in terms
27:31 of some synergies of bringing capital together and of reducing some costs. But other than
27:35 that, there is nothing, no other practical effect of that.
27:39 Is there, okay, so I am sorry, I am going back to the original point of the volatility
27:45 period for OG1. But one point that was thrown at that point was this fight between an old
27:54 way of doing business and a new way of doing business. Is that real or is that just something
27:58 that people cooked up in their own minds? See, I think, I mean, when you go through
28:02 a tough situation, and in this case, the tough situation was due to COVID. Literally around
28:09 the same time when the new management came, COVID started. Although, I think it took two
28:14 or three months to be officially notified as COVID. But, you know, in those circumstances,
28:22 so then we had the impact of that. So, people can say different, they can put different
28:27 shades to, you know, trying to say what happened. But I would just say that circumstances made
28:32 it very difficult. And, you know, things played out. And there was a change again. And, you
28:38 know, it's history behind us. Yeah. So I think it's a good, it's a good been a good turnaround.
28:45 And, you know, we are where we are today.
28:48 Last question from my side is this point about graduating to a universal bank. That's something
28:54 that you've expressed previously, that you want to move into the universal bank category.
28:58 But my question goes back to the SFB model, you said we are punching above our weight,
29:04 right? But is the best that SFB can hope for is the right to be converted to a universal
29:11 bank? Or does the SFB model on its own have legs to stand on?
29:15 No, absolutely. The SFB model has its own legs. You know, we have seen in the last seven
29:20 years how SFBs have all done. Yeah. And I think, you know, each one of them. I'm talking
29:24 about a long term view. Yeah, in the long term, you know, continuing to be an SFB. Yes,
29:29 it can happen that way. But obviously, you know, when you keep growing and you want to
29:33 grow into in our case, I mean, I can talk about what we are looking at in our transition
29:40 into a universal bank is to continue our customer base, our focus will continue to be the mass
29:46 market. It's not that we're going to suddenly change and change our focus and everything
29:50 else. But the flexibility or the greater flexibility which is available with a universal bank will
29:57 allow us to do that in a much better way. And I think, you know, that is the important
30:02 factor because, for example, I mean, now I can tell you that this interest rate hike,
30:08 RBI has raised the repo rate several times, I think, two point, 250 basis points. In our
30:14 case, you know, given that we are dealing with a customer base, which is vulnerable,
30:19 we had to manage that increase. We have done only 250 basis points increases. So that's
30:24 100 basis points against 250. So, you know, that is the situation. But if we were a universal
30:30 bank with, you know, lower capital requirements, lower PSL requirements, perhaps we would have
30:37 greater flexibility and can continue that for a longer period. So these are the things
30:41 that play out when you look at a longer period and, you know, even addressing the same customer
30:46 base. Of course, we'll be allowed to do a lot more because the 50 lakh loan limitation,
30:51 25 lakh loan limitation on 50 percent of the portfolio goes away. So you'll be able to
30:57 deal with the larger customer. But that is going to play out as a normal course of business,
31:03 not that suddenly we'll jump into project finance or we will go into, you know, these
31:08 sort of large corporate banking transactions. Because that's not really our thing. We may
31:13 do a few which make sense within the broader, which we are also doing. We lend to, you know,
31:18 other FIGs and things like that who are doing similar business and, you know, other types
31:23 of business, which are a small part of our portfolio. So that gives us a lot more flexibility.
31:27 So all I'm saying is that by itself, the SFBR model has been seen to be a model which is
31:33 successful. But, you know, the transition will help us to grow and we'll be able to
31:39 play out this role even better. Apologies, I said last question, but this is my last
31:44 question also. The question that I want to ask you is, is the business of lending to
31:48 the bottom of the pyramid, right? Or doing business in the bottom of the pyramid? This
31:51 is a question I ask a lot of people who are in this space. But is the business best served
31:59 as a for profit, you know, business oriented point of view? Or do we still need to keep
32:07 in mind that there is a moral sort of side to this business that you have to lend to
32:11 this group, because this group is devoid of credit, we end up having to go to landlords
32:15 who, I'm sorry, the money lenders who will end up charging them way too much interest
32:19 and probably that's not the best for them. What is the best way to approach this? Is
32:23 this a moral business? Or is this a business that's meant to make money?
32:27 I'll answer this question by saying you combine the two. It has to be moral, it can make business.
32:32 See today, India, you know, the number of people who have been, who has benefited from
32:37 this micro banking finance on a broad basis is the largest in the world. And that, you
32:45 know, could not have happened if it was just a sort of NGO type of situation. You needed
32:53 the business part of it to go. But overdoing the business as against the moral part is
32:59 also not correct. So that balance is very important. And if you can strike that balance,
33:05 then you got it good. But I think that is the thing which RBI and the regulator needs
33:10 to make sure that balance is well there. Because once you can establish the balance, then,
33:17 you know, we can keep growing. And that middle bottom of the pyramid is growing. It's not
33:21 earlier we had the pyramid. Now it's becoming more like a diamond. You know, people are
33:27 moving up. And that is what we are seeing because the customer ability and, you know,
33:33 mobility in the economic frame keeps moving. And that is what we are really trying to encourage.
33:38 All right, Mr. Davis, thank you so much for joining us on this conversation.
33:41 Thank you. It's a pleasure as well. Thank you.
33:44 Yeah.
33:45 [Music]