After the Reserve Bank of India (RBI) gave its in-principle approval to convert the microfinance company into a small finance bank three years ago, Bengaluru-based Jana Small Finance Bank has announced the commencement of its banking operations on Wednesday. It is the last microfinance company to convert into a small finance bank (SFB).

Earlier known by the name Janalakshmi Financial Services, the company suffered huge losses due to demonetisation, but now exudes confidence to turn profitable before the end of FY19.

In a leading business daily report, managing director and chief executive officer at Jana Small Finance Bank Ajay Kanwal is quoted as saying "Because of the delayed launch, the bank has lost many customers. I don't see a challenge on how we will grow, even though we are last, because the market still is underbanked. We have 45 lakh MFI (microfinance institution) customers, 600 store fronts and 15,000 employees. Jana was the largest MFI. It should be able to churn quickly".

At the end of FY18, the company reported loss of Rs. 3400 crore. The capital adequacy ratio of the bank at the end of March 2018 stood at 35%. The company was the worst hit in the wake of demonetisation, wherein its asset quality deteriorated and led to capital erosion.

Kanwal also is reported saying that the company waited for the Rs. 2000 crore capital infusion to complete to kick start commercial banking operations. He said, "The big challenge for a bank with a stable set of earnings, (is that) you need to build a stable set of assets. Even though Jana has losses, it has a good ability to execute on the loans. But it led to concentration. When things went bad it became difficult to control it. How do we build a sustainable set of earnings? Converting our contacts into a relationship and raising liabilities will be the other key challenges".

The weak collection or recovery mechanism and lower disbursement that resulted in losses for the company has made the rating agency CRISIL to downgrade the MFIs ratings in respect of debt instruments and bank loan facility.

The small finance bank will provide access to financial services in rural and semi-urban areas. Such banks can perform most of the functions of the regular commercial bank but at a comparatively smaller scale of operations.

The bank will provide basic banking services such as accept deposits as well as extend financing support to underserved customer section that includes small farmers, small business units, entities in the unorganized sector and micro and small industries.

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