Manish Kothari, President & Head of Commercial Banking, Kotak Mahindra Bank, reveals various contours of the Sonata Microfinance acquisition:
Smriti Pandey: What was the size and spread of Kotak Bank’s microfinance business prior to the Sonata Finance acquisition? Has the bank shifted (or plans to shift) its microfinance business to Sonata?
Manish Kothari: Microcredit is a fast-growing business at Kotak, and we have been deepening our presence. In Q4, FY 2023-2024 our microcredit business reported a healthy 60% yoy growth in advances (including purchase of Sonata’s book). Sonata Microfinance which is based out of Lucknow and has a branch network of about 560 branches in about 155 districts, centered around UP, MP, Bihar and North India will serve as the Business Correspondent (BC) of the bank post the acquisition, while its loan book has been merged with the bank. With the acquisition of Sonata in March 2024, Kotak’s microcredit business presence has now increased to 16 states through a network of 1400+ BC branches and we have a customer base of almost 2.7 million women borrowers. Prior to Sonata Microfinance acquisition, as of Q3 of FY2023-2024, Kotak’s microcredit business had presence in 12 states through a network of 800 BC branches with an active base of around 1.8 million women borrowers.
What parameters helped Kotak Bank finally select Sonata Finance from among the options available?
The acquisition of Sonata which has presence in northern states, complements our acquisition of BSS Microfinance, which is based in Bengaluru and has a larger footprint in the southern markets. With the acquisition of Sonata, Kotak now has a presence in 16 states covering a large part of the country. Microcredit continues to grow due to the demand for credit in the rural and semi-urban market as well as due to replacement of unorganized credit that is still quite prevalent in this segment of customers. With a larger footprint in microcredit now, you will see Kotak’s microcredit business reaching out to a much larger base of customers.
Will Kotak Bank provide additional debt and equity to Sonata Finance? Some numbers for FY24-25?
Sonata is a 100% subsidiary of the bank and will act as a business correspondent for the microcredit business, similar to BSS Microfinance which was acquired some years ago. As such, there’s no requirement for any additional debt / equity for Sonata.
What has been Sonata’s growth rate in the last 2 years, and what is the projected growth rate for the next 2 years?
Sonata had been operating as a NBFC-MFI entity thus far; but post the acquisition it’ll be a business correspondent for the bank’s microcredit business, wherein the loan book will sit in the bank. Hence, both periods will not be comparable. However, if we take the example of BSS Microfinance, it posted post tax profit of Rs3.83 billion for the financial year ended March 31, 2024 as against Rs2.97 billion a year ago. It has been growing steadily. So also, microcredit as a segment has been showing steady growth and we are working to capitalize on the growth opportunities.
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