By Kaustav Roy
MUMBAI, April 5 (Reuters) – Indian private sector lender Development Credit Bank Ltd. (DCBA.BO: Quote, Profile, Research) plans to enter the microfinance sector and increase retail loan exposure while reducing its corporate sector focus, a senior official said.
The bank expects microfinance to constitute up to 10 percent of its loan portfolio by 2009/10, Managing Director and Chief Executive Officer Gautam Vir told Reuters on Thursday. The bank’s loan portfolio was about 22 billion rupees as of December 2006.
“The opportunities in microfinance is humungous,” he said adding it would also help the bank meet its priority sector lending norms, apart from generating additional revenue.
The bank would use the expertise of one of its promoter group entities, Aga Khan Agency for Microfinance, which has over $50 million in outstanding microfinance loans in more than a dozen countries including Pakistan and some in east Africa.
“In microfinance, you’ve not even seen the tip of the iceberg,” Vir said adding past repayment statistics were also encouraging.
An estimated 130 million Indian households could potentially be served through microfinance, with money lenders and other informal sources accounting for more than 80 percent of borrowings. Informal credit in rural India is estimated at $5.4 billion, according to the All India Debt and Investment Survey.
This potential has also attracted India’s top lender State Bank of India (SBI.BO: Quote, Profile, Research), number two lender ICICI Bank (ICBK.BO: Quote, Profile, Research) and even private sector lender Yes Bank (YESB.BO: Quote, Profile, Research) to look at serving India’s 600,000 underserved villages.
“The earnings potential per rupee is higher though the size is small,” said an analyst with a foreign brokerage, adding the market would expand in the next 3-4 years.
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