Wonderful, any idea how much percentage of MFI loans are for consumption (The ones which will get effected by your thesis), and how much percentage for income generation? And any idea on how much MFI loan demand vs MFI loan supply?
You try finding the answer to these 2 question, than your skepticism might get reduced a bit 
I mentioned this since for me , security of money is more important.
In case MSME sector can show sustained growth with 20% lending rate, that will be great .
@v4value
This could be handled by SFBs by two ways…
@nil_71 , You can go through the ARs of listed and Unlisted MFIs to get the idea on sector outlook , growth and Scalability .
Hi Amitayu
To your points below.
Funding from Securitization will enable SFBs s to do the investments required for the CRR and SLR - not true because securitisation is being done even now. Now its being monetized by being sold to other Banks for PSL. They will actually lose that benefit because they will have to provide for their own PSL quota. Further CRR, SLR is seperate requirement from PSL quota in Loan book.
_As the cost of borrowing will be reduced , The spread between yield and cost of funds will be higher ,from where SFBs could invest into CRR and SLR,
There is no tap that gets turned on to get low cost deposits. It will take years to build a deposit base and the cost is upfronted. Net of opex even banks dont benefit form CASA except for a few. See IDFC.
Hi @v4value
There are two aspects here . One is longer term and other one is shorter term.
Longer Term View:
It is one thing sure that the SFB model may or may not be successful but it will ceratinly cause a
disruption in the MFI which will impact non SFB MFIs because
a) SFBs will accept retail deposts , which MFIs are not.SFBs will be able to use their deposits to do so and will thus lend at a substantially cheaper rate.
b) Establishing them is part of RBI’s effort to extend banking and credit facilities to areas and sections overlooked by Big Banks.
C)The credit rating of MFIs that have got SFB licences will also improve, enabling them to access loans more cheaply.While it will vary from bank to bank, the average cost of borrowing for an MFI-turned- SFB could be 3-3.5 per cent lower than its current rate.
d)While banks are regulated by the RBI and only answerable to it, MFIs come under the jurisdiction of state governments.
Short Term View:
It is well known fact that transition to SFB will increase the Opex, required funds to maintain SLR, CRR.
As per SFB mangement,they will be issuing CP which is lower cost and also hold the yield to do the balancing act on the OPEX,CLR,SRR (Unlike MFI, RBI Margin CAP 10% is not applicable for SFBs). We can verify these in coming quarter results.
As a long term investor I am Okay with this because in longer term perspective SFBs have an avantage on Business Model over MFIs regarding that’s why all the MFis applied for SFB license
It takes all views to make a market and I respect that. My view is over the next 5 years non SBF MFI’s will kill the SBF on market share and total costs/assets. They will continue strong growth and high ROE’s. Not sure how the long term will play out.
RBI not regulating MFI’s is factually incorrect. This has changed post Andhra debacle. You can check this.
Also to think customers will switch MFI’s for 100-200 bp in lending rate underestimates the entry barrier that a long working relationship with a JLG in a village creates.
How much deposits will these same customers have to invest for economic viability when they borrow 11-15K is another question.
Bottomline is the costs for SBF’s are known and upfront but benefits are hazy and in the best case very long term (>5 years). Looking at IDFC, I wonder if even institutional investors have that long a view. There may be some wisdom in the smartest money NBFC’s like MMFS and Shriram letting go of bank licenses.
Personally if SKS or Satin were to get bank licenses, it would break my thesis. In any case, we will see in 3 years 
Welcome back Subash… Very happy to see you in active mode… Apni ‘kripa-drishti’ es forum pe banaye rakhiyega !
Hi. Can you please help me explain how non-SFB MFIs will kill SFBs in market share over 3-5 yrs. Just trying to understand SFBs vs nonSFB-MFI. Thanks
@ v4value ,
I prefer to response those counter arguments which are backed by factual data instead of biased views of owners.I think any body should not compare with IDFC with SFBs . Because SFB’s operation is already in Priority Sector.
Moreover , It seems the 72 MFIs (including SKS and Satin ) were not smart enough or have lack of wisdom so they have applied for SFB license . 
.
i completely agree that SFBs will benefit in the long run, but the other way to look at is now with on tap banking licences option open, both sks and satin can apply for a universal bank where as a SFB will have to first set up the small bank successfully and then apply for a universal bank…
@amitayu All statements made by me are facts. Only forward looking statement is market share which is an opinion.
In any case I will write no more. We will see results from all the players over 2 years. We should revisit this thread then and see
@Sandip When your loan growth is tied down by weights of CRR and SLR you cannot grow as freely. Plus on operations side mgmt will have to make investments on liability side (deposits, branches) taking away from asset side (loans). You should see the conference call transcript for MMFS on why they let go off the license. It will help you understand. They are amongst the best mgmts.
@v4value, any idea on what was the CASA deposit Bandhan bank get in 1st year of operation? Also, do you have any idea how much money so called poor folks have deposited PMJDY accounts? I consider those actual numbers as data, as opposed to opinions.
The way I see SFBs is as follows. India has a huge supply-demand gap in financial products, especially for poor and in rural area. MFIs have so far been trying to cover some areas of financial inclusion agenda via their micro-lending, micro-insurance, and micro-pension schemes. What is missing so far is a micro-deposit side, whose size can be easily deduced from the scales of multiple chit-fund scams in the poorest eastern part of india, the amount deposited in Pradhan Mantri Jan Dhan Yojna accounts, the deposits in Bandhan Bank in its 1st and 2nd years of operation. And, be aware, non-MFI guys cant do the justice to it as they dont have the network/experience serving these poor to begin with. So those non-MFIs backing out from doing stuffs whose scope is beyond their competency is not a big surprise to me.
Hi Subhash,
Thanks for sharing your big picture thought process. It makes sense. And Bandhan, perhaps teh largest and best executor, is a great case study.
However, as an investor, I care about profits, returns and growth. CASA is a means to higher and better quality returns. No medals for CASA.
Lets discuss numbers. Since Bandhan is not publicly listed I scrapped some info (Bandhan Bank To Be Cautious About Lending, To Push For Deposit Growth | Mint, ICRA report) but if you have better data please share. Below are my conclusions:
Margins - 21% casa is commendable. But Bandhan’s cost of deposits is 8% EVEN WITHOUT adding extra opex from branches, etc attributeable to raising these deposits. NIM was 9%. Other MFI’s are actually higher than Bandhan on NIM inspite of lower scale. Also article note mgmt expects casa dep to grow 30% so CASA ratio will likely decline, benefits unlikely to improve.
Returns - ROA for Bandhan used to be north of 5% before. For FY16, 7 month as bank their net profit was 275 cr, annualised FY16 would be ~470 cr. On Loan book of 15,493 cr that is 3%. ROA would definitely be sub 3% given SLR, CRR investment book on assets. In fact though assets wouuld have increase >50% (dont have numbers bit loan book seems to have grown >50%) profit would have barely grown.
The numbers above suggest Bandhan, with perhaps the best possible execution on casa , which is the wholr and soul of bank thesis, has not benefited on margins and instead penalized on returns. Is it wrong to wonder how other sfb will fair? Hope members also comment with data instead of opninions.
Well, experience has tough me that it is very difficult to make people understand a concept, who are not ready to understand to begin with. And the scale/scope of combined richness of poor/middle class, their ability to repay loans, their ability/motivation to save are few of the classic examples of it. As I have seen it, either you understand it or you dont.
Just to give an example, see the 1st 2-3 lines of below news which came yesterday
If the average balance in the country’s 219 million Jan Dhan accounts
has more than doubled, from R795 in September 2014 to R1,735 in May
2016—according to IndiaSpend, the accounts themselves have quadrupled,
from 53 million to 219 million
http://www.financialexpress.com/article/fe-columnist/advantage-aadhaar/303933/
Now anyone who can do simple maths can see, the poors have deposited 38,000 crores in Jan Dhan Accounts, which is actually a govt scheme, with not so great advertisement. Btw, to put thing into perspective, the entire loan book of MFIs are now at around 50-60K crores. Smart guys can use this 2 stats to get a feel of how much these SFBs can get as deposits from poors, and how thing will look 3-4 years down the line (not 3-4 quarters as most analysts would love to see it)
Experience has also taught me that there are “smart guys”, and then there are over smart guys:) When one cannot explain numbers (how the ROA will improve for Bandhan) one can put the hope trade on 3-4 years down the line with a big picture stories.Have seen this umpteen times before (nearly a billion telco users but whats the return for top 3 telcos?) In any case Mr. Market will decide the winners. Perosnally I would want to project earnings for teh business I own, not bet on some big picture stories…
My humble view is that both SFB and non-SFB MFIs will do equally well or equally unwell, whichever the case may be. I think SFB license is a nice-to-have and not getting it isn’t a blow at all.
I feel we can be more respectful towards other posters than this and the forum experience will be more pleasant for everyone.
cheers.
Friends, lets keep our cool. This is a wonderful discussion. Lets learn from each other and separate wheat from chaff 
@subashnayak_19_, @v4value
Had calculations be made ahead of every nitty gritty stock markets would have been devoid of oppurtunities and volatility. I invested in sks micro in april 2014 and in ujjivan @250 recently (10% of my portfolio) more or less on line of thinking given by @subashnayak_19_.
Though @v4value you are right but in stock markets i consider we are more often provided with circumstantial information rather prima facie.
Thanks for sharing your thought process . It is as always indeed helpful.
Here are some data point from Ar and Internet lnk (attached below).
Pradhan Mantri Jan Dhan Yojana (PMJDY): As on June 1, 2016, 22 crore bank accounts have been opened under this scheme (public sector banks opened 17.3 crore accounts, Regional Rural Banks 3.9 crore accounts and private sector banks opened 0.81 crore accounts). The Balance per Jan Dhan Account has seen a consistent rise from 1,065 in March 2015 to 1,745 in June 2016. The non-operative accounts also have seen a consistent decline from 58% in March 2015 to 26% in June 2016.
During FY16, the total disbursements made under Prime Minister Mudra Yojana (PMMY) scheme was 1.24 lakh crore. In Budget 2016-17, the target of amount to be sanctioned under Prime Minister Mudra Yojana has been set at1.85 lakh crore.Also ` 2,400 crore has been allocated as equity capital to MUDRA and Credit Guarantee Fund under Pradhan Mantri Mudra Yojana.
Even as deposit growth in the banking sector is at an all-time low, Bandhan Bank has been able to garner nearly Rs 12,090 crore deposits for the financial year 2015-16. The bank clocked nearly 25-30% growth in deposit every month last fiscal, as it has been offering interest rates higher by at least 50 basis points on an average.
The bank’s gross NPA stood at 0.15%, while net non-performing assets stood at 0.08% at the end of 31 March 2016.
The bank has been able to reduce its cost of funds after converting into a bank. Bandhan’s cost of fund has come down from around 10% before conversion into a bank to 8% at present, as the bank has been able to garner deposits which had been cheaper from its earlier bank loans
The bank has been able to mobilize Rs 12,088.75 crore as deposits. Of this, nearly 21.55% or about Rs 2,605.59 crore are current account and savings account (CASA) deposits with interest rate relatively lower than fixed deposits
As a major portfolio of the bank remains microcredit, the net interest margin of the bank is quite high at around 9%, against 2-4% for most other banks. At present, the bank’s lending rate in the microcredit portfolio is about 20.5%, while the average cost of deposits is about 8%
The bank, with a capital base of Rs 3,200 crore and a healthy capital adequacy ratio of nearly 40 percent, has extended its branch network to 656 across 27 states. It plans to further increase it to around 750 by March end, 2017
Bandhan Bank reported a net profit of Rs 275.25 crore for nearly seven months period between August 2015-March 2016 . We can fore cast of Rs 475 Crore Profit (12 Months) against the last financial year, Bandhan, as a microfinance institution,which had posted a net profit of Rs 315 crore for the whole year. It is rise of 50% .
Management Guidence: This financial year we are looking at nearly 30% growth in the overall business of the bank
Notes Taken from below Aticles
SKS AR 2016
Thanks Amit,
Bandhan is different from SFB/MFI in sense that they r universal bank - they have many avenues to raise capital and is viewed favourably by corporates too… Moreoever being universal bank, they have better avenues with Govt firms too IMO.
SFB may have problem to raise capital - in concalls, managements of equitas/uj gave 5yrs target to raise deposit base to 50% which doesnt look optimistic.
As @v4value asked, how will Roa move after CRR/SLR requirements is question mark?
