Ujjivan Small Finance Bank saw ‘significant turnaround’ in March

Ujjivan Small Finance Bank is one of those niche banks that aims to make deeper inroads into rural and un-banked areas. The bank is a 100 per cent subsidiary of Bengaluru-based Ujjivan Financial Services.

According to Samit Ghosh, MD and CEO, the bank is targeting a deposit of ₹2,500 crore and 25 per cent increase in gross loan book this fiscal (FY18). Ghosh also plans to opt for universal banking licence at an appropriate time, but maintains that his focus will be the “mass-banking” segment. In a interview to BusinessLine , Ghosh spoke on demonetisation, asset quality, and growth plans for the bank. Excerpts:

How did demonetisation impact your micro-finance business?

We were impacted in the first two months because of currency shortage. Obviously, a lot of customers could not repay and our portfolio quality was affected.

Because of the currency shortage, we restricted loan disbursals and new customer acquisitions. However, subsequently, when we saw that some areas like the East were not impacted at all, we resumed lending to new customers.

Is there a spill-over effect?

In March, we saw a significant turnaround and our overdues came down by over ₹100 crore at that time. At the same time, we started to disburse loans and the volumes returned to pre-demonetisation levels, almost.

The gross non-performing assets prior to demonetisation was 0.2 per cent. Now it is 3.7 per cent.

Are write-offs on the cards?

Most customers wanted time, which we gave them. A lot of these customers are now starting to repay us in one or two instalments. But then, these are not current dues. Overdues may be there for three or four instalments and they may be repaying one instalment at a time. So, the intent to repay is there. But the capacity to repay is still not 100 per cent.

However, there will be a certain set of customers who have not repaid us at all. That amount will have to be written-off. We will get an idea after a couple of months.

Will demonetisation take a toll on small finance banking operations?

We had not estimated the credit cost that was coming. But had estimated for the incremental cost, and significantly invested in technology, infrastructure, branches and people.

The Reserve Bank of India has given us the option of converting all our micro-finance branches into small finance bank branches over a three-year-period. So, we will utilise that to the maximum possible extent.

How many small finance branches would you have by this fiscal?

Of the 457 branches, we will convert 171 into small finance bank branches by the end of this fiscal.

The balance will be “asset only” bank branches where we cannot take deposits.

In the coming three years we will make them full-fledged branches (deposit-taking and loan disbursals). Another 53 new branches in un-banked rural centres will come up this fiscal.

Are you expanding the product portfolio or entering new segments?

We have been working on this for the last three years and planned to build our portfolio in the SME (small and medium enterprise), small business and affordable housing segments.

Currently, 85 per cent of our business is micro-finance, and only 15 per cent fall in the SME, small business and affordable housing categories. Over a five-year period, this will change to a 50-50 structure (half from micro-finance).

Does this mean a reduction in micro-finance loan disbursals?

No, our book-size will increase.

Is there a plan to reduce the rates for micro-finance loans, especially since you can now have deposits?

It will take us a couple of years before we can start bringing down the cost of micro-finance (loans).

Any capital-infusion plans — Tier-I or even Tier-II?

No, we do not plan to have any Tier-I capital. Maybe we can go for Tier-II. It is long-term capital and it gives us additional liquidity and comes at a cost. We are right now trying to reduce our interest costs.

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