Small finance banks to grow their advances by 25-27 % this fiscal

MUMBAI: Small finance banks (SFBs) are expected to grow their advances by a robust 25-27 percent this fiscal, a tad lower than the previous fiscal’s 28 percent growth boosted by their geographical expansion.

Amid challenges in mobilizing deposits and their higher cost, SFBs are likely to explore alternative, non-deposit avenues to fund credit growth. Crisil Rating said in a note on Monday.

The estimated credit growth can be divided into two segments — traditional and new, with the latter driving the sales momentum. The constituents of new asset classes may vary across SFBs depending on their original segment focus, but would typically include mortgage loans, loans to MSMEs, vehicle loans and unsecured personal loans.

According to Ajit Velonie, senior director at the agency, credit growth in new asset classes is seen at 40 percent this fiscal, while that in traditional segments will be 20 percent. With this, the portfolio mix will continue to shift; the share of new segments will cross 40 percent by March 2025, twice the March 2020 level. Most of this diversification is towards secured asset classes, resulting in the share of secured lending rising, albeit at a moderate pace, says the report.