Capital-raising by small financial banks accelerates in the second quarter: report

New Delhi: Small financial bank (SFB) capital raising accelerated in the quarter ended September 2022, according to a report by Care Edge Ratings.

According to the brokerage report, majority of SFBs are absorbing the cost of credit and growth is returning to the sector despite the postponement of initial public offerings (IPOs) in FY22 and the first quarter of FY23, in largely due to an unfavorable stock market scenario and the subdued performance of SFBs during the year. FY22.

“The raising of capital has gained momentum. During the quarter ending September 2022, SFBs raised equity and Tier II capital totaling Rs. 3,275 crore compared to nil in Q1FY23. Many more SFBs are also reviving their capital raising plans, including IPOs. To achieve a 30% CAGR growth rate in FY23-24, most SFBs need to raise capital. Given a 2% cushion to the regulatory capital requirement and a CAGR growth of 30%, SFBs are expected to raise new capital of Rs. 4,000 crores in FY23-24″ , says the report.

SFBs represent a small part of the banking sector with a market share of 1.14% in advances and 0.71% in deposits, as of March 31, 2022. According to the brokerage report, the good mobilization of deposits and awareness underbanked helped the SFB gain more share.

“With a strong focus on liability deductibles, SFBs have significantly improved their loan deposit ratio and achieved significant loan portfolio diversification as well as strong growth in advances. Going forward, the share of the non-microfinance portfolio is expected to increase significantly in the medium to long term,” the report states.

The advance portfolio grew at a four-year compound annual growth rate (CAGR) of approximately 40% relative to private sector banks, which grew at a CAGR of 18%. Total advances increased 24% (YoY) while deposits increased 32% (YoY) in FY22.

According to CareEdge Ratings, the industry is expected to maintain a 24% advance growth rate in FY23 as some SFBs face capital constraints. “The industry’s growth rate will likely exceed FY22 levels if capitalization improves. Capital raising by SFBs gained momentum in Q2FY23 and is expected to continue,” the report said. report.

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