1. After the sale of Centrum’s housing portfolio, it was expected that Unity would get into the housing finance business. Its bid for Aviom Housing was seen as a step in that direction. Do you regret missing out on the opportunity as you lost the bid?
Housing is a big asset class. We would like to participate in that asset class one way or the other. What we sold (Centrum Housing Finance) was an affordable housing business. Whether we do the same, or we do a micro-LAP (loan against property), or we do some other related stuff is something to be seen. But yes, something in the housing asset class we will have to do.
Unity Bank bid for Aviom with the objective of securing a strong starting platform in the micro home loans segment. The bank bid consciously with a clear wish list, which did not receive acceptance. The bank’s board and management believe it is prudent to keep options open for future opportunities rather than pursue an acquisition at any cost.
2. Where does Unity’s plan to enter housing finance stand now?The housing sale hasn’t been completed yet. So, technically we can’t start anything till the housing sale happens. Even though we sold it, it is still with us and we are running that business because we can’t stop the business. So, we can’t do it in the bank at present.
But we are doing a lot of internal work on that. We are expecting the housing sale to conclude by April or May. For the housing business, our thought process is that we are not going to do prime lending, which is lending in top-tier towns, we are not keen to do that. Affordable housing continues to be one option. Also, we will see if we can do something in micro-LAP, which is largely the Rs 2-5 lakh kind of loan.
3. Have you started planning for a public listing?
We are two, three years away from listing. The listing requirement for small finance banks has changed. Earlier, RBI told these banks to list after five years of operation. It’s now eight years. We have another three, four years. So somewhere after two and two-and-a-half years, we’ll start figuring out when is the right time to do it.
4. Where does Unity Bank stand in terms of capital?
At Unity, fortunately, we are very surplus in capital. We are holding, I think, 28% capital adequacy. So, it’s not an immediate concern for us. But yes, as we grow, capital will be required.
5. Would you like to use the excess capital for inorganic growth in any other asset classes?
It’s a little premature. We don’t have scale ourselves right now. So right now, we would like to grow organically for a while. And then maybe in the years to come, we will see.
6. On the asset side, what would be an ideal composition of business for Unity?
Housing, of course, is on the wish list but it will take some time. The MSME is a big piece for us. We have some supply chain financing. We have some commercial banking. And recently, in late 2025, we launched two new products, two credit cards and one personal loan. These are all digital. We have also begun the gold financing business on the digital platform.
7. Unity also has a sizable microfinance business… One-fourth of your loan assets is microfinance. Given the nature of microfinance business, which sees ups and downs in quick succession, what would be the way forward?
As far as microfinance goes, we are quite happy for it to be at the 20% of the book. It is 25% now but when other businesses grow, the microfinance share will come down. I think it’s still a good business. There will be cycles, which we have already seen three in a short span of time. We will probably see this every four-five years. But in the good years it’s a very good business. And if you can account for it correctly and you remain conservative in the good years, I think you can weather the storm of the markets.
8. Overall, how do you see the small finance banking sector evolving? Why aren’t there many takers for new licences?
There was an issue earlier. People saw it as actually riskier because all the efforts were not fruitful or profitable. I think it’s a very sort of traditional mindset. That if you can’t do the X thing or you have to do a Y thing, then it’s not a good thing. Actually, if we see the SFBs now, they have done quite well.
What has happened is that since some of them had a predominance of microfinance and because there have been three bad cycles in short duration– when these banks had just come in, they got the demonetisation in. Then about five years later, when they had recovered from demonetisation and were taking off, they were hit by Covid and now this greed of the banks to lend excessively to micro borrowers has again hurt themselves.
I think small finance banks can create their own niche. There is a huge opportunity in tier two, tier three, tier four, in the MSME segment, and I think that’s just phenomenal. Only a fraction of all the MSMEs that we have in the country, only about 15 or 17%, get formal finance. About 80% of them are still relying on family and friends to make it happen. And these are registered. And then there are others who are just starting… mom-and-pop shows… not even registered. I think there is a lot of space.
9. Indian regulators are hesitant to give corporate houses an entry into banking as they worry about conflict of interest. You have seen the world banking market very closely. What does your experience say about corporate ownership in banking?
In most other countries you look at, especially in the eastern world, be it Korea or Hong Kong or Singapore, local banks are all owned by domestic business houses or there are conglomerates who run those banks. There are very strict rules of arm’s length with their own group company.
The rules can be framed, but being able to enforce them will be the challenge. It’s really in the RBI’s wisdom and their gift to get to the point where they think that is workable. If you go back in time, even in India, a lot of the banks were family owned. Central Bank was with Tata, Birla had Uco Bank. So, it’s not like it has never happened. Going forward, when is the right time to again allow business ownership of banks… is really a privilege of the RBI to decide that.
10. How do you see the Indian banking sector evolving?
When we look at the Indian banking scene, two things are visible. First, we have very few banks. If you look at the size of the population, the size of the economy, we have relatively fewer banking institutions than any other country. Whether you look east or west, you will see that there will be more banks.
Second, we have very few large conglomerate banks. If you look at most of the countries, there will be much larger banks than we have. Of course, we have State Bank of India, we have HDFC, ICICI, which are big. But given the size of this economy, we could have had single institutions of larger size. There seems to be some plan of the government to consolidate and create larger institutions. At the same time, at the rate the top private sector banks are growing, they will also emerge as really large individual banks. So, I think this side of the gap will probably get filled over time.
The number of banks will be the real challenge. It is not just the government being difficult about granting the license. There is a large cross section of entities which are eligible for applying for banking licenses, but, they are just not interested because they find the compliance obligation too large or they just feel they don’t need the deposit franchise and they are happy without it.
There is another category who has this sense that they may not make the fit and proper cut. So, till they don’t open banking to the business houses, this problem will stay. There will be a very limited number of eligible players.
So, I think that is probably the big decision that the government has to take at some point. I mean, they made a decision. Right now the decision is no. And if they ever overturn it, then that would probably give a very large entry to a large number of business houses. I think for anybody with deep pockets, banking is a very good business to be in. We have seen that the world over.
Either they will have to give it to financial global players like the PE firms etc or they will have to give it to the business houses. And then we might get the right representation.
I think the big change that has happened recently has come from the foreign banks. The traditional foreign banks are actually shrinking in India. Like, you know, Citi sold its retail, Deutsche is selling, probably some others have stalled their growth plans etc. But the new foreign banks, largely from Japan and the Middle East, are now emerging as the big force. So, we have seen the Japanese coming to Yes Bank, the Japanese coming to Sriram. We have seen the Middle East Bank coming to RBL, all in billions of dollars. This is a new move.
But these are all coming to existing banks, they are not adding to a new bank name. They are taking it to size which is also important.
So, I think those are the two gaps, we need more banks and we need more size.
I think the size will now likely happen through these if the government continues to encourage and allow, you know, big institutions from around the world because they allowed DBS to take a full majority, they have allowed NBAT to take a full majority. So, you know, if they allow these things to happen then clearly we will see that part of the thing happening.