SFBs enter next phase of growth with diversification and digitisation

Small Finance Banks (SFBs) in India have entered a pivotal phase of their evolution, transitioning rapidly from their microfinance institution (MFI) roots into robust, diversified lenders with multi-product capabilities, according to a report by Systematix Institutional Equities.

- TBG NETWORK

It says, in contrast to their early years, when business models were centred on group-based microcredit and geographically narrow operations, SFBs today are demonstrating a broader lending mix, expanding into secured products such as affordable housing, MSME loans, and vehicle finance. This transformation has enhanced portfolio stability and positioned SFBs to compete more effectively with larger banking peers.

“A decade after the first licenses were issued, SFBs are emerging from their nascent and volatile phase into a period of sustained, structurally superior growth,” noted the report. A critical shift underway is the visible improvement in operating leverage. During IPO years, many SFBs struggled with elevated cost structures driven by extensive branch rollouts, legacy processes, and delayed digital integration.