Ujjivan Small Finance Bank expects its net interest margin (NIM) to fall to 9% in 2023-24 from 9.5% in the last fiscal, with the bank trying to reduce its exposure to the unsecured micro-banking loan segment, says managing director and chief executive officer Ittira Davis. He tells Ajay Ramanathan that the bank will add 100 branches in FY24, even as it focuses heavily on its digital presence.
Many of your peers have applied for an Authorized Dealer-I licence. Will you do so too?
We have to wait for one more year because we need two years of continuous profitability to apply. So we will apply next year at the same time. We are active in non-resident Indian deposits. If any customer wants to make a currency exchange, we have to get another bank involved. That will not be necessary with an Authorized Dealer-I licence.
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What is your deposits strategy in FY24?
Current account savings account (CASA) deposits are our focus for 2023-24. We want to take the CASA ratio to the 30% mark. We are building products around that, especially on the current account side, for MSMEs and businesses that have current account deposits. That will help us get closer to our target.
What is your strategy on home loans going ahead?
We are seeing good credit offtake. We have reconfigured our housing teams into asset centres where we are able to provide everything in one stop… It is already beginning to help us grow the business. Going forward, home loans will witness good traction as far as the secured book is concerned.
How has the traction been for the Hello Ujjivan mobile banking application? What are your projections?
As of April 30, we have close to 130,000 downloads and 750 fixed deposit accounts have been opened since the application’s launch. Downloads are increasing 20% month-on-month. Cashless repayments are also increasing on a monthly basis. So far, a total of 21,776 customers have made repayments through the application. By December, we are targeting one million downloads. If that happens, we can see our repayment value going up to `8-9 crore per month. That will help us save costs.
What is your net interest margin target for FY24?
The net interest margin in 2022-23 was 9.5%. We are expecting it to fall to 9% in 2023-24. We are strategically trying to reduce our unsecured or micro-banking portfolio to 68% from 71%. When that happens, the net interest margin will come under a bit of stress. The interest rate cycle has not changed so there may be some further heating up of deposits. We have planned for that. All that put together, we expect the net interest margin to be at 9%, if not slightly better.
In the second half of the year, we may start seeing a slight downturn in interest rates. Of course, Reserve Bank of India pumping liquidity into the market is also a factor. If that happens, interest rates will be less under pressure. But until the second half of this year, the current estimate is that interest rates will remain on the higher side.
Is the September timeline for the reverse merger still on track?
That is the current target for the reverse merger of Ujjivan Financial Services into Ujjivan Small Finance Bank. It is lying with the National Company Law Tribunal (NCLT) so it depends on how fast they come back. We have submitted everything at the end of March so six months should work out.
What are your branch expansion plans for FY24?
We are going to add around 100 branches in this financial year and we will be entering our 26th state, which is Andhra Pradesh. At the same time, we are also focusing heavily on the digital space.
What new product lines will you be focusing on going ahead?
We have vehicle finance and gold loans, which we are planning to push ahead. We have been testing out a few things. We will be pushing them into full production in the second half of this financial year. While disbursements are expected to be less than `500 crore this year, we see them picking up from 2024-25.