At 20%, small finance banks have highest return on advances

Mumbai: The fledgling small finance banks are paying nearly double of that of their peers paying in cost of funds at a high of 8.66 per cent, yet maintaining the highest return on advances at close to 20 per cent and on assets and equity in high teens than their peers, says a

report.

According to an analysis of the key financial metrics of small finance banks (SFBs) by Care Ratings in comparisons to their public, private and foreign sector peers, these newest entities on the finance street are paying as much 8.20 per cent in interest cost for deposits, which in the case public sector banks is only 4.96 per cent, at 5.26 per cent for private sector ones and at 3.65 per cent for foreign banks.

Again SFBs are paying a high 8.66 per cent in cost of funds, as against 4.92 per cent by public sector ones, 5.41 per cent by private lenders and 3.73 per cent by foreign banks.

But when it comes to return on advances, SFBs pocket a whopping net 19.87 per cent, as against 8.16 per cent for PSBs, 10.10 per cent for private lenders and 8.45 per cent for foreign lenders.

Similarly, on the return on assets, the PSBs earn a minus 0.23 per cent, private lender earn a paltry 0.51 per cent while MNC lenders earn a lower 1.55 per cent and the SFBs earn the highest at 1.70 per cent.

The SFBs have the second best numbers when it comes to return on equity earning a shiny 15 per cent, as against minus 4.16 per cent for PSBs, a low 3.30 per cent for private sector banks and when it comes to foreign banks they return 8.76 per cent to their investors, according to Care Ratings based on the recent RBI report on 'trend and progress in banking'.

The 10 SFBs came into existence later 2016 with the objectives of providing a savings vehicle for the unserved sections as well as supplying credit to small businesses, marginal farmers.

These 10 SFBs have a total balance sheet of Rs 1.33 lakh crore as of FY20 and their share in the overall banking system was an insignificant 0.7 per cent, which was after a 58 per cent growth in FY20, while banking as a whole inched by a paltry 8.5 per cent.

These ten banks had core capital of Rs 5,151 crore, reserves of Rs 11,047 crore, and their deposits stood at RS 82,488 crore, of which term deposits were Rs 69,823 crore.

They had a cumulative investment of Rs 24,203 crore while the loan book was Rs 90,576 crore from which they collectively earned an income of Rs 19,219 crore of which interest income was Rs 16,948 crore and the rest being other income at Rs 2,271 crore.