Small loans, big impact: Microfinance now big business at banks

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High margins and volumes are two reasons why banks are exploring the market in thrift credit

From being passive lenders to microfinance institutions (MFIs) till about five years earlier, banks have turned out to be active players in the business of small loans.

 

As on end-December 2016, banks accounted for 37 per cent (Rs 36,683 crore) of microfinance portfolio of Rs 98,625 crore; five years earlier, a handful of MFIs accounted for more than half.

 

High margins and volumes are two reasons why banks are exploring the market in thrift credit.
Most of them in MFI lending are private sector ones. A majority of this portfolio is with 11 banks — Axis, Bandhan, DCB, Equitas, HDFC, ICICI, IDFC, Kotak Mahindra, RBL and YES.

 

This apart, several public sector banks have increased their MFI exposure, through business correspondents (BCs).

 

“We see a lot of synergies with the microfinance sector. More, it is quite well-regulated and growing at a fast rate, providing a lot of business opportunities,” said an official in charge of a bank’s microfinance operations.

 

Also, over the past 18 months, banks have also been aggressive in taking equity stakes in MFIs. Last year, Kotak Mahindra Bank acquired Bengaluru-based BSS Microfinance.

 

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RBL acquired 10 per cent in Utkarsh Micro Finance, which recently graduated into a small finance bank (SFB).

 

In July last year, IDFC Bank acquired Trichy-based Grama Vidiyal Microfinance, its second deal in the MFI space. Earlier, IDFC had taken 10 per cent in east-based ASA International India Microfinance.

 

In March last year, DCB Bank had acquired a 5.81 per cent stake in Odisha-based Annapurna Microfinance. Earlier, RBL had acquired 30 per cent in Swadhaar FinServe, a company acting as a BC.

 

Non-banking financial companies (NBFCs) have also shown interest. In 2015, Manappuram Finance had acquired Asirvad Micro Finance, a Chennai-based NBFC-MFI.

 

With a number of MFIs graduating to SFBs, the number in the MFI space is likely to further increase. And, even after graduating into a bank, they are likely to keep much of their lending to microfinance. Bandhan Bank, earlier an MFI, has even after close to two years into operation as a bank still got over 80 per cent of its lending portfolio concentrated in microfinance.

 

“Over the past three years, banks have shown a high level of interest in microfinance, part of a diversification strategy. Also, at least for two to three years, the new SFBs are likely to focus on microfinance as they build their deposit base,” says Ratna Vishwanathan, chief executive officer, Microfinance Institutions Network.

 

Seven of the proposed SFBs, some of which have transformed to a bank, together account for 46 per cent of the MFI portfolio, amounting to Rs 26,228 crore.

 

Source: http://www.business-standard.com/article/finance/small-loans-big-impact-microfinance-now-big-business-at-banks-117031300020_1.html

PE exits set to see new record through IPOs this year

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With RBL Bank and Aster DM Healthcare planning to raise Rs 1,500 crore and Rs 1,600 crore, respectively, through initial public offerings (IPOs) this year, private equity investors are set to make a record exit using the primary market route.

According to Prime Database, a Delhi-based financial services firm providing research on IPOs, the first six months of the year saw PE investors exit stakes worth Rs 2,993 crore across six IPOs. These include small finance bank Equitas raising Rs 2,176 crore through IPO in April. Twelve PE investors including International Finance Corporation and Sequoia Capital sold stake worth Rs 1,454 crore in the issue, making part or full exit.

The first six months of the year has already seen more PE exits through IPOs than the annual record of Rs 2,346 crore across 12 IPOs in 2015.

“The value of exits is related to the size of the company looking to list and in recent times, we have seen larger companies coming to the market,” said Subhrajit Roy, executive director and head (equity capital markets origination) at Kotak Investment Banking. “Investors are increasingly focusing on post-listing liquidity, which is enhanced by a higher free float. The average deal size has been increasing to adhere to this requirement,” said Roy.

While Ratnakar Bank’s IPO will see PE funds Gaja Capital and Capvent India making part exits, that of DM Healthcare will see India Value Fund and Olympus Capital paring their stake. Another PE-backed company, Varun Beverages, has also planned to raise Rs 1,000 crore through an IPO this year by providing liquidity platform for its PE investors AION Global and Standard Chartered Private Equity. “The PE activity over the past few months was characterised by an increase in buy-outs, the restart of investments in infrastructure projects especially roads, PE-backed IPOs and continued robustness in fund raisinPE exits set to see new record through IPOs this yearg,” said Mayank Rastogi, partner and leader for PE at consulting firm EY.

“Owing to the strong listing performance of PE-invested firms in the past 12 months, a long list of IPOs is being lined up amongst PE-invested companies,” said Rastogi.

PE exits set to see new record through IPOs this year. Increasing PE exits through IPOs is also credited to the performance of secondary markets. Sensex, the benchmark index of the BSE, has risen four per cent to 27,167 this year. Also the average price-to-earnings ratio for 30 Sensex companies is 20.13 now, against five-year average of 17.93. This has given PE-backed companies an opportunity to provide their investors’ exit through the IPO route.

“As the broad secondary markets remain buoyant, we will see more and more PE-backed IPOs where the investor would make only partial exits,” says Pranav Haldea, managing director at Prime Database Group. “PEs want to keep their skin in the game as they expect secondary markets to do better from hereon.”

Source: http://www.business-standard.com/article/specials/pe-exits-set-to-see-new-record-through-ipos-this-year-116070600752_1.html