AU Small Finance Bank plans entry into microfinance business, acquisition may bolster the plan
AU Small Finance Bank, which started its banking journey six summers ago with 95% secured loan assets and without any microfinance lineage, has now decided to explore the so-called bottom of the pyramid customer segment.
The lender, while planning its own microfinance loan product, is also said to be exploring the acquisition route which would help it with a ready microfinance platform.
«We remain open to the idea of inorganic growth,» executive director Uttam Tibrewal told ET, adding: «However, I can't comment on any media reports that suggest we are in discussion with somebody for a merger. We discuss so many things at our small finance bank forum.»
Microfinance contributes a little over three-fourth of Fincare's outstanding portfolio of Rs 7600 crore.
The management of AU believes that foraying into microfinance, which is essentially offering small loans to the economically weaker and largely under-banked customers without collateral, is a natural extension of its business strategy.
Tibrewal said that about 70% of AU's lending is into the semi-urban and rural areas with over 90% priority sector portfolio.
About 30% of its banking touchpoints are in unbanked rural areas. The bank has 1038 banking touchpoints overall including 476 branches.
«Therefore, getting into microfinance is a natural progression of our journey,» he added.
«Microfinance is a settled product now. We have a stable deposit flow to explore this segment,» he said.
Unsecured microfinance loans are typically known for high returns and robust loan repayment behaviour by borrowers.
