Small Finance Banks (SFBs) may need to focus on their bottomlines as and when financial conditions tighten, according to a Reserve Bank of India (RBI) report.
The “Report on Trend and Progress of Banking in India 2019-20” observed that the prevailing easy liquidity conditions facilitate borrowings and refinance on which SFBs rely. Currently, there are 10 SFBs in the country.
The central bank said the risk absorption cushions in the form of provision coverage ratio (PCR) is low in some SFBs, impacting their ability to withstand adverse shocks.
The report said those SFBs, which were earlier NBFC micro finance institutions (NBFC-MFIs), continue to have significant exposure to unsecured advances even as they strive to diversify their portfolio.
Green shoots in the form of revival of agriculture and allied activities may augur well for financials of these banks, it added.
The RBI noted that collection efficiency of these banks had dropped substantially during the strict lockdown…