#CapitalSmallFinanceBank's MD & CEO Sarvajit Singh Samra and Executive Director & CFO Munish Jain talks about the bank's recent #IPO listing and earnings.
Watch them in conversation with Pragatti Oberoi.
For the latest news and updates, visit: ndtvprofit.com
Watch them in conversation with Pragatti Oberoi.
For the latest news and updates, visit: ndtvprofit.com
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TVTranscript
00:00 We are here at BSC in Mumbai, where Capital Small Finance Bank is up on the bourses.
00:05 Joining us for a conversation are Mr. Salvajit Samra, who is the MD and CEO, and Mr. Manish
00:09 Jain, who is the ED and CFO of the bank.
00:12 Gentlemen, thanks so much for joining us for this conversation.
00:15 I would like to start this day and the conversation by understanding that you are naturally getting
00:20 more capital from this IPO that has come in.
00:23 So, how do you plan to deploy this?
00:26 Thank you Pragati for this connect.
00:30 The capital that we have raised is growth capital.
00:34 It should be utilized, it should be part of tier one capital of the organization and is
00:40 growth capital.
00:41 Alright, fair enough sir.
00:46 Thanks so much.
00:47 Next, I want to understand that how do you see your earnings spanning out, especially
00:51 in the next quarter and FY25?
00:54 Pragati, firstly, before we understand, as Mr. Samra said, we are typically raising growth
01:01 capital.
01:02 We, being an organization, who is a retail centric, both on the side of the balance sheet,
01:07 be it the asset and liability.
01:08 So we will continue to expand in a secure lending franchise with a retail deposit as
01:13 our core source of funds.
01:15 So that is the basic source and we are here to go more granular in the geography where
01:20 we are, keeping those things in sight so that we don't want to lose sight of what we are.
01:26 So keeping those things in sight, we want to look forward to continue to growth over
01:29 balance sheet.
01:31 And whether we talk about from the top line perspective, whether we want to grow over
01:35 balance sheet from the asset franchise or whether we talk about the bottom line perspective.
01:39 So bottom line, last year we closed around 92-94 crore rupees with a ROTA of 1.2.
01:45 So that was the last FY, I am talking about FY23 number.
01:48 FY24, we want to expand it further.
01:50 So we got the growth capital now at the end of the year.
01:53 So the majority of the growth will be pouring in, start pouring in FY25.
01:58 So in FY25, we are ambitious.
02:00 So we want to look into the macro factors.
02:03 We want to continue to grow through our businesses.
02:05 Just from the bottom line perspective, just from the, I am talking about the medium term
02:10 perspective, we want to grow with a CAGR of above 30-35%.
02:13 Above?
02:14 30-35% CAGR on the bottom line perspective, on the profitability perspective.
02:18 And this should be the combination of the growth coming from the top line growth and
02:22 also further increasing our margins, increasing our spreads by optimizing over spread.
02:29 Okay, so secured lending will be your focus.
02:32 Yes.
02:33 That will be the main.
02:34 Yes.
02:35 Okay, fair enough.
02:36 So I also have some numbers in front of me that I took from the RHP as well.
02:39 If you look at the GNPA ratio as of March 31, 2023, yours stands at 2.77%.
02:45 And when we look at your peers, at least the immediate peers, Ujjivan Small Finance stands
02:50 at 2.88, Suryodaya stands at 3.13.
02:54 So relatively you are in a better position as well.
02:56 So do you plan to, how do you plan to rather bring this down or rather maintain these levels?
03:02 Pragati, before I start the answer, I just want to add a couple of things.
03:07 Firstly, if we talk about our model, we typically follow a practice.
03:12 Our practice, we call it a no write-off policy or no write-off practice or no NPS allof practice.
03:17 The number which we mentioned, if I talk about the number FY23 number, that is around 2.8
03:23 and 1.4, that is GNP and NP.
03:25 This is with almost zero write-offs or with no NPS allof.
03:30 So the number is typically purely recovery effort based.
03:34 So we believe we being a secure lender, the money which is outstanding or money which
03:39 has become delinquent or I'll say is recoverable.
03:42 It's a timing gap.
03:44 Since we have a collateral, real asset collateral available in majority or rather 85% plus of
03:48 the asset.
03:49 So yes, going forward, we will continue our franchise with a similar avatar to have a
03:54 better quality of the work.
03:58 And I want to also touch base upon the regulatory aspect a little bit here because RBI had asked
04:03 your bank to specifically put in place a system for online submission and e-tracking of MSME
04:09 loan applications.
04:10 So one, I want to understand what is the update on that and second, what are the benefits
04:15 of such a system if that is there in place as to why RBI would ask a bank like yours
04:20 to put that specifically?
04:22 So typically, what we understand the objective of the regulatory body is to continue to improve
04:32 our systems.
04:33 So we respect the regulatory body in this regard and we have a huge appreciation for
04:37 them that they are making us, shaping up in a better way.
04:41 So in the similar way, as you mentioned in the RHP, it is being disclosed also, just
04:47 we being advised or rather we have been advised to put in place the online system of tracking
04:52 the MSME.
04:53 The core objective is if the MSME applied for the loans, we should be in a position
04:58 to track it real-time basis where that application is, whether it is being processed efficiently
05:04 or what is the timeline we are taking.
05:06 So we are in the process of implementing the same, so which will be done through lots of
05:10 platforms, which we are talking about the loan origination system specifically for MSME.
05:15 So we are currently in the stage of evaluating that particular platforms and look forward
05:20 to implement this as soon as possible.
05:21 Do you have a timeline in place for that as soon as possible as to when?
05:26 The other thing is that at this stage, this is basically more of a developmental activity.
05:34 At this stage, I will not be able to give any timeline, but just we want to do it as
05:37 a haplessness.
05:38 Okay, fair enough and since we are on the regulatory page already, I would like to touch
05:42 on one more point here.
05:44 Your statutory auditors were not approved, rather their reappointment was not approved
05:49 for FY24.
05:51 So do you have a new auditor in place already or has RBI communicated to you on any of these
05:57 grounds?
05:58 As far as the statutory auditor is concerned, that is basically an industry level issue
06:04 for that particular firm.
06:05 For some reasons, that particular firm has been asked not to conduct audits for all of
06:09 the banking.
06:10 They are the auditor for some of the few other dual commercial banks in the shape of a foreign
06:15 bank or private sector bank also.
06:17 Since we were in the listing process and keeping in view all the ingredients of that particular
06:23 thing, with the right understanding of the regulator, they are still carrying on as an
06:30 over auditor.
06:31 But now we are in the process of finding a new auditor.
06:34 The process is already being completed.
06:36 So we are coming up to a board which is slated in a week's time or so to get their views
06:41 on it and out of the name shortlisted, get the approval so that we can go and apply to
06:46 the regulator body with the new names.
06:48 So the names have been shortlisted at least within the company for now?
06:52 Yes, we have shortlisted a couple of names and now we are looking for the guidance from
06:56 our board members.
06:57 Now I want to come a little bit towards the geography of the bank.
07:03 You are largely concentrated in North India, specifically Punjab.
07:07 Do you plan to increase this going ahead and if yes, what states are you looking at particularly?
07:12 We started as a local area bank where the geography was very limited.
07:18 Originally only three districts of Punjab, then we got expansion in year 2013 from three
07:25 to five districts.
07:26 And of course when we converted in the year 2016, this barrier was gone.
07:31 But we are in a branch-led business model and Punjab itself is a 22 district straight.
07:37 So we thought it is meaningful for us into the business model we are to be all over Punjab
07:43 and along with that we started expansion to other states as well.
07:46 For example, Haryana, which we now call is, we are in the process of making our next Punjab.
07:52 Presently the branches are spread across five states of India, North states of India along
07:56 with the Union Territory of Chandigarh.
07:59 There are two more states, again in a contiguity way, which we intend to add soon in the current
08:06 financial year and this is how we will keep on expanding with a contiguity in a near future
08:14 term.
08:15 We will be deep diving into the existing states and geographies where we are and of course
08:21 we will keep on expanding to other states as well.
08:26 Sir you said that you have two more states planned for current financial year, you mean
08:31 FY24?
08:32 Yes, it is, in the current calendar year we will definitely, because only say some time
08:41 is left for the current financial year, but in the calendar year there is 24, definitely
08:50 we will be expanding to other more states.
08:52 What are these two states?
08:53 Which states?
08:54 As we are in five states which are Punjab, Haryana, Rajasthan, Delhi and Himachal, these
09:03 two states which we are emphasizing to expand is Jammu and Uttar Pradesh.
09:08 Fair enough, thanks so much for the clarity sir.
09:13 My one last question to you both would be based on your borrowing mix.
09:18 So again I scanned the numbers and if I look at September 22 versus September 23, in the
09:25 latter you have not gone for money market borrowings or interbank overdraft.
09:30 So why is that?
09:31 That is my first part of the question.
09:33 My second part of the question is how do you see your borrowing mix changing going ahead?
09:37 Pragati, if you look into our balance sheet historically and what we believe it could
09:41 be, we are typically a retail deposit centric laboratory franchise.
09:47 However typically if I talk about the balance sheet, 83% of the liability side is in the
09:52 shape of deposit.
09:53 Out of this FY23, 97.9% being retail and September it is around 93.5% is being the retail deposit.
10:01 So typically we are a retail liability centric liability deposit franchise.
10:05 Yes, we do to the borrowings on selective basis typically range between 3.5% to 4.5%
10:11 or 5% of the balance sheet.
10:12 So going forward depending upon the macro factors, we intend to have a higher concentration
10:18 towards a deposit segment only and only on need to have basis move to the borrowings.
10:23 Okay, but if the breakup of these borrowings like I mentioned that there were these two
10:29 particular that were not visible in September 23 but they were visible in September 22,
10:34 do you see this trend lasting or you might consider these two particular borrowings once
10:38 again going ahead?
10:40 These two borrowings are typically to take care of very short term needs.
10:44 So depending upon the need of that particular day, these things come on.
10:49 So yes, it will continue to depend upon the day on which.
10:52 So but we will not be keeping any higher reliance on these two set of borrowings.
10:56 Okay, sorry I am just stretching this question ahead because I am just recalling the numbers
11:01 as well.
11:02 Your NCDs also in the borrowing mix were up in September 23, I do not remember the exact
11:08 numbers but they were up as compared to September 22.
11:11 Yes, you are right.
11:12 Yes, so would that be a preference going ahead, NCDs?
11:16 NCDs in our balance sheet are typically over tier 2 capital.
11:19 So that is rather than being a plain vanilla NCDs, they are typically over tier 2 bonds.
11:24 So just depending upon the need of the capital, that money will be keep on moving.
11:28 But now since we have already reached the capital, so I am sensing, we over senses,
11:33 so they will not be having immediate requirement of raising the tier 2 NCDs.
11:37 Fair enough, alright.
11:38 Thanks so much to both of you for joining us and talking to us.
11:41 It was a pleasure having you here.
11:43 Thank you, Prakriti.
11:44 Thank you so much.
11:44 Thank you.
11:45 Thank you.
11:46 Thank you.
11:46 (dramatic music)
11:49 [music]