Ujjivan Small Finance Bank is looking to diversify its loan book, with an aim to expand the share of secured assets to 35 per cent by the end of FY23, from the current level of 30 per cent.

At present, affordable housing finance accounts for half of the secured portfolio, while micro and small enterprise lending constitutes 10 per cent and vehicle finance and other products add up to the rest.

“Going forward, the feeling is that we need to increase the size of the secured book, slowly taking it to a 50-50 mix in 3-5 years,” Ittira Davis, MD and CEO, told BusinessLine.

“We might see microbanking (unsecured) growing ahead of the other segments during the festive season,” he said, pegging the overall growth for the year at about 30 per cent.

.Ujjivan Small Finance Bank has, so far, not hiked lending rates, which Davis said was a conscious call to support customers who are emerging from a period of pandemic-related challenges.

“Now pretty soon we’ll have to do that [hike rates] as well because this much of an increase [in the repo rate] is quite high.” The bank plans to hike lending rates from October 1, and will take a call on the quantum of hike in the “next week or so”, he said.

Secured microbanking

A significant part of the bank’s secured portfolio is loans to it existing microbanking customers. This allows the bank to increase the share of secured loans, and cater to the needs of its customer base, said Davis.

“Microbanking customers have told us for a long time that gold loans is something they are very keen to have. So, we have chosen to start that in select locations and once we finish the pilot, we will be able to ramp it up in more locations,” said Davis.

The pilot for gold loans is expected to be launched in October, and the product will initially be introduced in South India, he added.

The bank will also expand its vehicle finance business, which is largely restricted to the microbanking customers, to garner a broader customer base. This year the focus will remain on two-wheeler loans, but going ahead, the bank could look at four-wheeler and pre-owned vehicle finance, said Davis.

He added that the bank is also looking to tie-up with certain specialised fintechs for short-term financing of transactions, such as trade bills and bill-discounting and partnerships in the automobile parts supplier space.

Expand liability profile

On the liability side, the bank is focussing on small and micro enterprises and microfinance business customers, with the objective of growing its low-cost deposits.

“We have introduced QR code for collection of receivables or payments at various stores, which are being used by customers. This will help to build a reasonably good CASA, and is showing good signs,” said Davis.

“We believe digital with brick-and-mortar is the best combination because brick-and-mortar by itself is a very expensive proposition,” he said, adding that bank is looking to enhance its digital offerings, especially on the liability side.

At present, only about 5-10 per cent of the bank’s liabilities originate through digital channels, but the bank hopes to grow this share to about 25 per cent in 1-1.5 years, said Davis.

Asset quality improvement

The bank has been seeing a “fair level” of recoveries for last two quarters, including in written-off accounts, which has led to credit costs falling dramatically, said Davis, adding that the bank had put in place a strong collection team about 6-9 months ago.

Owing to the strong recoveries and the high quality of the new portfolio garnered post-Covid, the bank expects to see a sustained reduction in gross bad loans going ahead, he said. The aim is to bring down the gross NPA ratio to around 2 per cent by the end of FY23 from 5.9 per cent as of June-end, he added.

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