The “bottom of the pyramid” customers proved to be the best customers for Small Finance Banks who made sure that they didn’t pile-up debt.
90% of the loan books of SFBs froze into a Moratorium in March, but by July, the Moratorium loan book halved for most SFBs. The prime focus of the SFBs will be recovery for many months, but they expect things will be normal and business as usual soon.
The people at the bottom of the pyramid made sure that the debt doesn’t pile up and run into an over leverage position. Hence the top-level management of the SFBs is confident even when 90% of their loan book froze into moratorium during March.
The “bottom of the pyramid” people maintained a certain credit discipline as most of the people didn’t want to borrow more even when approached by SFBs. The SFBs didn’t want to push there borrowers from their part.
The officials of the small finance banks feel that the customers stay with them for 3 to 5 years, hence the banks believe that customers need support and not pressure to pay up. Equitas Small Finance Bank has about 43% of the loan book under Moratorium as compared to 90% at the beginning. The Small Finance Banks reached out to educate people about the Moratorium and to explain that it was not a weaver and it expired after August. However, institutional and policy support is required by the Small Finance Banks if the issue takes a political turn.
According to the officials, two customers have the intention to pay and the situation is under control. However, where is always less than 1% who will use any excuse, in this case, the Moratorium to not pay the loans.
The depositors are queuing to park their money as deposits despite interest rate cut, hence the liquidity position is strong for Small Finance Banks. There is an increased reliance on technology for Small Finance Banks and their customers, as 60 to 70% of the recovery could be done through digital means. But the need for cash exists as the average size of a microfinance loan is 2000 rupees.
Small Finance Banks are planning to expand their business to new areas to include insurance products and scale up their loan business.
