Transitioning to universal bank will aid borrowing cost, grow corporate clients: Jana SFB MD

Jana SFB MD & CEO Ajay Kanwal 

What opportunities do you foresee by gaining universal bank license?

 A lot of depositors ask what a SFB is, as they face difficulty in differentiating and understanding. I think the first big benefit to convert from a SFB to universal bank is that it will put us on a level playing field for deposit mobilisation. It may also help us to reduce some of our deposit rates compared to other universal banks. Second, a lot of customers, whether it be mid-sized MSMEs or small corporates, they do a lot of good work on supply chain, invoice discounting, purchase invoice discounting, bank guarantees, but they are not sure whether SFB can support it, whereas we can do it. From that lens, servicing mid-sized MSMEs, small corporates, who need dedicated bank (can be served after getting universal bank license). For us, mid-sized MSMEs are large customers and we really would give them prime services. But if they are not even aware that we are capable, then its unlikely that we will do business together. So both on deposit side and lending side, it will lead to positive result for the bank. From investors view point, a lot of investors globally don’t know what SFBs are, as this model is very peculiar to India. You could say that investor base may certainly widen. Employees will also be delighted because they already do work as a scheduled commercial bank.

By when do you expect the regulator to decide on the transition application?

 The regulator has rightly said that there is no timeline. If you see the circular on SFBs’ voluntary transition into universal bank, it lists the eligibility criteria to apply. It does not mention when a decision will be made. To my mind, it is not the biggest issue for us. Rather, meeting all the required RBI norms and becoming eligible to transition to a universal bank was the most important thing. Now it is only a matter of process and time. Second thing is that some SFBs applying to convert into universal bank may lead other SFBs to follow suit. We are the first three to apply (AU SFB, Ujjivan SFB and Jana SFB). The result of the first three applications could influence others.

Does the SFB model need regulatory tweaking?

 In my mind, SFBs have a very good model. When SFBs were being thought of, nobody imagined the outcome once they launch. On the loan side, I see no difficulty as we can do any amount of business as we want. And fundamentally, I don’t see constraint there. On deposit side, there may be some apprehension on what is a SFB, is my deposit safe. This word of “SFB” has influenced a bit of velocity of deposit, price of deposits, and has not yet been fully understood by people. SFBs are scheduled commercial banks, but as these are new entities with new names, not everyone is aware about it. However, we must give credit to the RBI, SFBs are a great idea. So will my loan business change completely when we convert to universal bank, no. We will still do affordable finance, used car finance, MSME loans, among others. I will do what I am doing. I am just expecting newer set of clients and depositors and lower borrowing cost. My growth rate, RoA, RoE is good today. Getting universal bank license just gives me greater flexibility, wider choices.

What is the impact on Jana from the RBI’s front loaded 50-bps repo rate cut?

 The bigger picture is that if economy does well, more jobs get created, and that in turn aids growth. I think this repo cut has been made to ensure that growth remains steady. It is good for banks, and consumers at large. Obviously, no one expected a CRR cut. This reflects that the regulator is signalling that ample liquidity will be provided to support growth. From a bank perspective, as repo is cut, all banks will have two choices, cutting either deposit or loan rates. I think both will happen. Also, I think there will be more incentive to banks to lend money as parking funds with the RBI will lead to lower returns. Overall, I think the RBI has been ahead of the curve. It is too early to be comment on margins, but I don’t see significant impact.