Nitin Chugh, Managing Director of Bengaluru-based Ujjivan Small Finance Bank, which has drawn attention for its conservative lending practices without compromising on growth prospects, feels the code for responsible lending (CRL) “should be made sacrosanct” for all microfinance lenders.

The self-regulatory code was launched by the Microfinance Institutions Network (MFIN) and Association of Community Development Finance Institution (Sa-Dhan) in September 2019 amid rising concerns over aggressive lending leading to mounting indebtedness.

The microfinance industry in Assam has been rocked by a controversy due to the aggressive lending practices and a report by Macquarie Research referred to the West Bengal market as ‘over-heated’. The Macquarie report, dated September 2019, which was prepared based on a field study, mentioned Ujjivan as a ‘conservative lender’.

CRL restricts the number of lenders who can serve a single borrower at the same time and limits the total lending per customer to ₹1 lakh. The move was resisted by a section of banks, including microfinance major Bandhan Bank. According to MFIN, among the universal banks, ICICI, Axis, IndusInd and Kotak Mahindra signed up for the CRL. Among the small finance banks, Equitas, Fincare, Jana, Utkarsh and Ujjivan agreed to follow the code.

Ujjivan, which graduated from an MFI to small finance bank in 2017, has 78 per cent of its total loan portfolio deployed in the microfinance sector. The share was as high as 86 per cent a year ago.

Knowledge sharing

According to Chugh, a majority of the players in microfinance are very well disciplined. “However, one or two take the short-cut,” thereby creating trouble for others. He advocated for more common code and knowledge sharing to prevent any untoward situation.

The bank avoided geographic concentration of micro-banking portfolio. Tamil Nadu has the largest share of 16.5 per cent of Ujjivan’s microfinance loans, followed by 14.5 per cent in Karnataka and 13.5 per cent in West Bengal. “We are evenly spread across the country,” said Chugh.

On the increasing share (22 per cent) of non-micro-banking portfolio, he said the share of the portfolio will increase further in the long run. The clue lies in the innovative planning of branch network and use of technology.

Though positioned as a mass-market bank, Ujjivan is building its branch network in urban areas to tap the middle and lower middle class customer base as well as the micro and small enterprise segment. The rural customer is catered through the innovative use of technology and Banking Correspondent network.

Chugh does not foresee a change in the bank’s focus when it graduates into a universal bank. “Universal banking licence, if available, will increase our lending capacity, but mass market will continue to be our focus area,” he said.

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