Unity Small Finance Bank Eyes Housing Finance in Next Fiscal, Says Jaspal Bindra

Unity Small Finance Bank, which recently missed out on acquiring Aviom India Housing Finance, is now focusing on strategic options rather than aggressive acquisitions, according to Centrum Group executive chairman Jaspal Bindra. Bindra, who is also a non-executive non-independent director at Unity Bank, spoke about the bank's plans to enter the housing finance business and other growth strategies in an interview.

Housing finance is a significant asset class, and Unity Bank is determined to participate in it. The bank had bid for Aviom India Housing Finance with the intention of establishing a strong foundation in the micro home loans segment. Although the bid was not successful, the bank's board and management believe it is more prudent to keep their options open for future opportunities rather than force an acquisition at any cost.

The sale of Centrum's housing portfolio has not been finalized yet. Therefore, Unity Bank cannot officially start its housing finance business until the sale is completed. Despite this, the bank is actively preparing for the housing finance sector. Bindra mentioned that the bank is not interested in prime lending in top-tier towns but is considering affordable housing and micro-loans against property (micro-LAP) in the Rs 2-5 lakh range.

Unity Bank is also planning for a public listing in the coming years. The Reserve Bank of India (RBI) has revised the listing requirements for small finance banks from five to eight years of operation. Bindra expects the bank to start considering the right time for listing around two to two-and-a-half years from now.

In terms of capital, Unity Bank is in a strong position, with a capital adequacy ratio of 28%. This surplus capital is not an immediate concern, but the bank will need to address it as it grows. For now, Unity Bank is focusing on organic growth before considering inorganic expansion.

The ideal composition of business for Unity Bank includes a mix of asset classes. Housing finance is on the wish list, but it will take time to materialize. The bank is also strong in the MSME segment, supply chain financing, and commercial banking. Recently, Unity Bank launched two new credit card products and a personal loan, all of which are digital. The bank has also initiated a gold financing business on a digital platform.

Unity Bank has a significant microfinance business, accounting for about 25% of its loan assets. Bindra is content with this proportion, although it may decrease as other business segments grow. Microfinance is a cyclical business, but the bank has weathered several downturns and remains optimistic about its potential.

The small finance banking sector in India is evolving, and Unity Bank is well-positioned to capitalize on opportunities in tier two, three, and four cities. The MSME segment, in particular, offers immense potential, with only a fraction of MSMEs receiving formal finance. Bindra believes that small finance banks can create their own niche in these underserved markets.

Indian regulators are cautious about allowing corporate houses to enter banking due to concerns over conflicts of interest. However, Bindra notes that in many other countries, local banks are often owned by business houses with strict rules to ensure arm's-length dealings with their own group companies. He believes that the RBI will eventually decide whether to allow business ownership of banks.

Looking at the broader Indian banking sector, Bindra observes that there are relatively few banks compared to the size of the population and economy. The government's plans to consolidate and create larger institutions may fill this gap, but the number of banks remains a challenge. The entry of foreign banks, particularly from Japan and the Middle East, is a positive trend, but these investments are primarily in existing banks rather than new entities.

In summary, Unity Small Finance Bank is strategically positioning itself to enter the housing finance business, grow organically, and capitalize on opportunities in the MSME segment. The bank's strong capital position and prudent approach will help it navigate the evolving landscape of small finance banking in India.