The granting of banking licences to IDFC and Bandhan Financial Services is interesting when looked at from the point of view of the character of the institutions that have been chosen by RBI. One is an MFI while the other is an infrastructure-finance company. If an NBFC was awarded this privilege, then the transition would have been relatively seamless. But once we have an infra-finance company and an MFI in the frame, the future paths become eventful. Quite evidently, both the institutions must have chalked out their plan that convinced RBI and hence there is a lot of thought that has gone into it. But it would still be compelling to conjecture on the issues on the table.
Let us look at the MFI. It has a good spread across the country, and given its predilection to operate in unbanked territories and lend to the underprivileged, the priority-lending task can be met with consummate ease. Creating branches is not an issue if the circumference will be where it is. But once it decides to get into mainstream banking, then scaling would be a priority where they move from rural to urban and metro areas. When we talk of SLR, the bank has to bring in treasury and risk experts to manage the funds and meet the regulatory compliances. ALM becomes complex, unlike its MFI activity where funds received are parked for short-term across the portfolio. Therefore, to begin with, the physical space covering branches and ATMs along with human resources would be the main areas to look at.
A low-cost model followed so far would not require highly-qualified staff as microfinance is more a relationship-based banking, involving gelling with the customer. While garnering deposits from the existing clientele would be easy, spreading to other regions will require banking skills, which have to be developed. Therefore, there is a huge scope for institutions like the Indian Institute of Banking and Finance (IIBF) to pitch in here. In fact, the nuances of commercial banking need to be learned and imbibed by the staff so that they are equipped to do business under the regulatory environment.
As long as MFIs stick to their clients, the model works fine. Once they start transitioning to deposit-picking, their pricing model will change. First, the existing customers who pay 20-22% currently will coexist with the new ones who are financed through higher CASA deposits, which will go at a lower