Ujjivan Small Finance Bank (SFB), which reported an 8% quarter-on-quarter decline in its net profit to Rs 300 crore for the three-month period ended December largely because of higher expenses, is confident of posting its highest-ever net profit in the fourth quarter of the current fiscal, managing director and CEO Ittira Davis told FE.
“Our expenses were little higher in Q3 compared to Q2, leading to a squeeze in the operating profit. And that came from three areas,” Davis said. “The Q4 tends to be our best quarter by way of business, and even on the bottom line, we expect it to be the best quarter.”
During the third quarter, interest expenses were higher due to tight deposit market conditions. The lender also incurred higher expenses as the number of new branches doubled compared with FY23 to 100. The SFB’s property rentals also grew from the lows of Covid-19. Overall, the total cost increased 44% year-on-year (YoY) and 9% QoQ to Rs 1,198 crore in Q3. Total income grew 36% YoY and 5% QoQ to Rs 1,655 crore.
Despite tough market conditions, the SFB will aim at sustaining its YoY deposits growth rate of 28%. Its overall deposits stood at Rs 29,669 crore as of December 31, of which low-cost current account and savings accounts (CASA) formed 25.5%. The lender has launched a new CASA product, Maxima, which is bundled with insurance policy and free lounge experiences, among other features, and is expected to boost the CASA book.
“We are getting digital term deposits from places where we don’t even have a branch in the vicinity. These new sources are helping us grow the deposit base even without increasing interest rates…,” Davis said. The SFB will aim to increase its CASA book from 25% to 30% in the next fiscal, he added.
While the lender had guided for a 9% net interest margin for FY24, it stood at 8.8% during Q3 and is expected to be at the 8.9% level by March, largely due to tough deposit market and increasing share of low-margin secured loans. “We are managing our liquidity, so that it doesn’t cost us too much. Secondly, we are trying to improve returns on investments,” Davis said.
The gross and net non-performing asset ratios stayed largely flat at 2.1% and 0.16%, respectively, as on December 31. With the credit cost sustaining at the sub-1% mark, the asset quality is likely to improve.
The next date of the National Company Law Tribunal’s hearing on the reverse merger of Ujjivan Financial Services with the SFB is February 29 and the lender is likely to close the process in FY25, Davis said.