Its performance has made Ujjivan Financial Services the darling of foreign investors. The MFI proved that serving the unserved can also be profitable. Samit Ghosh, founder and managing director, tells Shakti Patra he wants to create a mass bank by bringing small businesses and the salaried class in the unorganised sector into the organised sector. Excerpts:
How has life changed post-listing and the switch to being a bank? You must now be under a lot more scrutiny?
Apart from the fact that we are spending a lot of time with investors—much more than what we were doing earlier—I think things are pretty fine. Ideally, we would have liked the initial public offering to have happened after we became an SFB. But in order to meet the regulatory guideline of majority domestic ownership, we had no option.
As an MFI, you were growing at well over 50%. What are the lessons which you think will help you succeed as an SFB?
Ujjivan was set up to provide financial services to the segment of society which didn’t have access to it. And we wanted to do it in a viable manner. I think one of the big lessons we have learnt is that it can be done. When we were doing our road shows we faced some skepticism because that was the time when PSBs were reporting huge non-performing assets. Investors were questioning how we would be successful in such an environment. We told them our philosophy was to serve the unserved and the underserved in a viable manner—something we did successfully as an MFI and something that could also be done as a bank. The success of our IPO and the performance of our stock indicates the market too believes in this credo.
In FY16, your gross NPAs stood at just 0.14% while your operating profit margin was almost 70%. Do you believe such numbers will be possible as an SFB?
As we move to lending to individuals, we expect our credit costs to be slightly higher.
Ujjivan SFB is offering an interest of just 4% on savings deposits while even some universal banks offer substantially higher rates. Shouldn’t you have offered higher rates?
A savings account is primarily a transactional account and not interest-rate sensitive. Customers, however, are sensitive about the rate of interest on term deposits. We want to be competitive in this segment by offering about 1% higher interest than the average rate being offered by universal banks.
So what are you offering customers?
We have designed a savings account that has no minimum balance requirement and is accessible through multiple channels. We have developed a model that allows us to open accounts using a hand-held device and the e-signature of the customer. We have bio-metric enabled ATMs so that our customers don’t even have to remember their PINs. We have also developed phone, mobile and internet banking for them. And these are being provided at no additional cost.
You offer 8% on one-year deposits but your lending rates continue to be over 20%. Won’t customers be put off by such huge spreads?
Our customers know the cost involved in delivery of services; it’s not just about the spread. Moreover, lending rates will come down as our liability mix moves in favour of deposits. Today, the bulk of our liabilities come from wholesale borrowings from banks and as we build up our retail liabilities, our lending rates will also go down.
You said in the first few years Ujjivan SFB will cater mainly to existing MFI customers and less affluent or the middle class. But you also want to become a universal bank in a few years. Isn’t there a conflict in this?
It’s right that we will be catering for our existing MFI base but we are also targeting customers one and two levels above that. These include small businesses, the salaried class in the unorganised sector and also farmers, all of whom have bank accounts. They put money in chit funds, invest with organisations like Sahara. We hope to bring this segment into the organised sector. What I have also said is that since RBI norms permit us to apply for a universal bank licence in five years, we may apply for the same given the restrictions on SFBs. But our long-term objective is to be a mass market bank.
Digitisation and fintech are the buzzwords right now. Do you think these are as key to an SFB as to a universal bank?
I think digital technology is extremely important for us because it helps reduce the cost of delivery of services. It’s not a luxury item. Ultimately, the cheapest way to deliver services is to make the customer transact through a mobile phone. Moreover, given the smaller ticket size of transactions of an SFB customer, the use of digital technology helps with the viability of the business.