Even as the Kolhapur-based private lender Ratnakar Bank continues to
serve the local community of traders, small businessmen and farmers, it
now aspires to become a pan-India player. The strategy for expansion is
to keep the plan simple: build on legacy, achieve scale and enter new
regions. “We are only trying to extend the boundaries of what has been
built. We are very clear in our minds that we cannot make this bank a
reflection of our previous organisations. We have consciously put those
clothes behind us,” says Rajeev Ahuja, who earlier worked with Citi and
currently heads the strategy and financial markets division at Ratnakar
Bank. Excerpts:
Ratnakar Bank is known for reaching out to small borrowers and lowincome groups. These have been no-go areas for most banks who fear that that their money would be wasted on poor customers and bad loans. Still your bank has been able to maintain profitable growth. Can you share with us the success of your business model and how plan to take it forward?
As our roots lie in rural parts of Maharashtra, our retail banking operations are largely focussed on families with disposable incomes in rural areas. We make about one-third of our loans to farmers, small businesses and lowincome consumers - a target base that normally operates outside India’s banking system. The bank is using the deposits it takes from urban customers to extend loans to rural borrowers, with an eye toward small businesses such as tea stall owners, cobblers and people who typically do not have access to banking services. These businesses are historically dependent on loans from family and friends, loan sharks, or microfinance institutions. But we have shown that there is enough business to be made at the bottom of the pyramid. In the process, Ratnakar Bank has become a model of profitable growth for the country’s 500 million small borrowers. Financial inclusion is big business for us and we will continue our efforts in that direction.
Why do you think most banks are afraid of starting operations in rural areas despite there being government-led initiatives meant to encourage lenders to set up branches in India’s outskirts?
Rural banking involves a lot of risk in a country where a majority of the population lacks financial literacy and credit culture has yet to evolve. Poor Internet connectivity in the hinterland along with meagre savings and disposable income in the villages add to the challenges. Even so, spending in rural India, which accounts for about 68% of total households in the country, outpaced that in urban areas between fiscal years 2010 and 2012, the first time in nearly 25 years, according to Crisil Research, indicating that these markets could present better opportunities. For Ratnakar, capitalising on that means thinking small. The bank, for example, lends small loans to women in Maharashtra to help them buy cows. Following our example, many banks now see rural banking as a great opportunity and the trend will gain strength in times to come.
Have you set any targets for the bank in terms of branch expansion?
Historically the bank has been embedded in a big part of Maharashtra and Karnataka with a solitary presence in Delhi and Bangalore. From 85 branches two years ago, we now have 130 branches across Maharashtra, Gujarat, Delhi NCR, Uttar Pradesh, Madhya Pradesh, Karnataka and Goa. In the current fiscal we plan to open 30-40 new branches across the country. We plan to set up a total of six branches in Tamil Nadu, and also open more in Rajasthan, Madhya Pradesh, Chhattisgarh, West Bengal and Kerala this fiscal. In keeping with our focus on financial inclusion and the agribusiness segment, the bank will open branches in Nellikuppam and Avinashi, in Tamil Nadu. These branches will cater to farmers, small businesses and those involved in the textile trade in and around these areas. We have identified Mumbai to northern Karnataka as a big business corridor. The idea is to develop that further. We have also identified other markets such as the NCR as having a significant business potential. With
branches in Noida, Gurgaon, Bhiwadi and Sohna road we now have a decent presence in NCR. We have opened a branch in Surat, we are going to Chennai, Hyderabad. All these markets are large markets and have to be seen three to five years from now.
Ratnakar Bank is readying for market listing. When do you plan to come out with your IPO?
We are ready and preparing for listing early next year. We will do so at the first opportune moment, but the timing also depends on the state of the markets.
It is said that to fund its loans, Ratnakar pays high deposit rates – 5.5% on savings accounts, compared with 4% at most Indian banks, and its total deposit cost averages 8.9%, compared with the industry average of 6%. Is that sustainable?
Ratnakar’s operating expense of 2.67% of average assets is higher than the industry average of 1.7%. Yes, cost is high, but I don’t think costs will always remain high. As we build scale, cost of servicing and acquisition will come down. Our net interest margin, a key gauge of profitability, stands at 3.58%, which compares well with that of most other banks.
Recently, Ratnakar Bank tied-up with E-Meditek for the launch of discount-offering pre-paid healthcare cards. What do you see the benefits to your bank by associating with a health care card?
We are delighted to partner the launch of a revolutionary payment product in the field of health care. We are confident that this will define the way health care payments are made in the near future and help bring a lot of ease, convenience, efficiency and speed in the entire transaction cycle. Also, it’s a win–win situation for all the entities involved in offering this service since it brings value to all stakeholders. Our bank’s emphasis has always been to develop/partner in launching such innovative payment products. Prepaid card offering has been one of our focus area and we hope to create a difference by constantly stantly bringing new products/ payment ent opportunities in the future as well.
SANDIP GINODIA
www.abhisheksecurities.com
Mob : 91 9830271248
Email : ginodiasandip1@gmail.com
Ratnakar Bank is known for reaching out to small borrowers and lowincome groups. These have been no-go areas for most banks who fear that that their money would be wasted on poor customers and bad loans. Still your bank has been able to maintain profitable growth. Can you share with us the success of your business model and how plan to take it forward?
As our roots lie in rural parts of Maharashtra, our retail banking operations are largely focussed on families with disposable incomes in rural areas. We make about one-third of our loans to farmers, small businesses and lowincome consumers - a target base that normally operates outside India’s banking system. The bank is using the deposits it takes from urban customers to extend loans to rural borrowers, with an eye toward small businesses such as tea stall owners, cobblers and people who typically do not have access to banking services. These businesses are historically dependent on loans from family and friends, loan sharks, or microfinance institutions. But we have shown that there is enough business to be made at the bottom of the pyramid. In the process, Ratnakar Bank has become a model of profitable growth for the country’s 500 million small borrowers. Financial inclusion is big business for us and we will continue our efforts in that direction.
Why do you think most banks are afraid of starting operations in rural areas despite there being government-led initiatives meant to encourage lenders to set up branches in India’s outskirts?
Rural banking involves a lot of risk in a country where a majority of the population lacks financial literacy and credit culture has yet to evolve. Poor Internet connectivity in the hinterland along with meagre savings and disposable income in the villages add to the challenges. Even so, spending in rural India, which accounts for about 68% of total households in the country, outpaced that in urban areas between fiscal years 2010 and 2012, the first time in nearly 25 years, according to Crisil Research, indicating that these markets could present better opportunities. For Ratnakar, capitalising on that means thinking small. The bank, for example, lends small loans to women in Maharashtra to help them buy cows. Following our example, many banks now see rural banking as a great opportunity and the trend will gain strength in times to come.
Have you set any targets for the bank in terms of branch expansion?
Historically the bank has been embedded in a big part of Maharashtra and Karnataka with a solitary presence in Delhi and Bangalore. From 85 branches two years ago, we now have 130 branches across Maharashtra, Gujarat, Delhi NCR, Uttar Pradesh, Madhya Pradesh, Karnataka and Goa. In the current fiscal we plan to open 30-40 new branches across the country. We plan to set up a total of six branches in Tamil Nadu, and also open more in Rajasthan, Madhya Pradesh, Chhattisgarh, West Bengal and Kerala this fiscal. In keeping with our focus on financial inclusion and the agribusiness segment, the bank will open branches in Nellikuppam and Avinashi, in Tamil Nadu. These branches will cater to farmers, small businesses and those involved in the textile trade in and around these areas. We have identified Mumbai to northern Karnataka as a big business corridor. The idea is to develop that further. We have also identified other markets such as the NCR as having a significant business potential. With
branches in Noida, Gurgaon, Bhiwadi and Sohna road we now have a decent presence in NCR. We have opened a branch in Surat, we are going to Chennai, Hyderabad. All these markets are large markets and have to be seen three to five years from now.
Ratnakar Bank is readying for market listing. When do you plan to come out with your IPO?
We are ready and preparing for listing early next year. We will do so at the first opportune moment, but the timing also depends on the state of the markets.
It is said that to fund its loans, Ratnakar pays high deposit rates – 5.5% on savings accounts, compared with 4% at most Indian banks, and its total deposit cost averages 8.9%, compared with the industry average of 6%. Is that sustainable?
Ratnakar’s operating expense of 2.67% of average assets is higher than the industry average of 1.7%. Yes, cost is high, but I don’t think costs will always remain high. As we build scale, cost of servicing and acquisition will come down. Our net interest margin, a key gauge of profitability, stands at 3.58%, which compares well with that of most other banks.
Recently, Ratnakar Bank tied-up with E-Meditek for the launch of discount-offering pre-paid healthcare cards. What do you see the benefits to your bank by associating with a health care card?
We are delighted to partner the launch of a revolutionary payment product in the field of health care. We are confident that this will define the way health care payments are made in the near future and help bring a lot of ease, convenience, efficiency and speed in the entire transaction cycle. Also, it’s a win–win situation for all the entities involved in offering this service since it brings value to all stakeholders. Our bank’s emphasis has always been to develop/partner in launching such innovative payment products. Prepaid card offering has been one of our focus area and we hope to create a difference by constantly stantly bringing new products/ payment ent opportunities in the future as well.
SANDIP GINODIA
www.abhisheksecurities.com
Mob : 91 9830271248
Email : ginodiasandip1@gmail.com
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