By Shashank Didmishe
In a bid to raise its share of secured portfolio and bringing a balance to the overall loan book, Ujjivan Small Finance Bank will focus on affordable housing and MSME lending along with the new products that are in the pipeline, Ittira Davis, the managing director and chief executive officer, said. The bank is planning to bring down the share of microfinance loans in its portfolio to 60-65% in the next three years from current levels of around 70% in order to increase its secured loan book.
With the Bengaluru-based lender now out of the woods from the effects of the pandemic, it now wants to shift focus on growth driven through segments outside its traditional operations.
Microfinance loans constituted 68.9% of the bank’s total loan portfolio, affordable housing at 15%, micro, small and medium enterprise (MSME) loans formed 9.1% and micro individual loans were 10.5% as of June 30.
“MFI (microfinance institution) is really our strength because we have been in that business for 15 years and what we know about that product is much more than other products. We think it is a profitable business, but it needs to be balanced slightly differently and that is what I think we have learnt in this crisis,” Davis said.
While the bank had withheld growth during pandemic, which led to a lag compared to most peers, the situation now changing, Kotak Institutional Equities said in a note. The new management team is clearly focused on executing on growth while also spending efforts and resourced on driving collections as well, the brokerage said.
The affordable housing segment saw a slightly higher growth in Q1FY23 as the overall housing is recovering, Davis said, adding that the bank has made a structural shift in the segment of moving to semi-formal and formal borrowers from informal ones. The bank has decided to reduce the exposure to the non-salaried borrower to improve credit quality in the segment. However, the effect of this shift on asset quality will be seen in the next few quarters. The gross non-performing asset (NPA) ratio in the segment stands at 4.4% as on June 30.
The share of salaried home loan (HL) customers increased to 47% as of June 30 as against 38% in the pre-pandemic period and the salaried HL segment now accounts for 54% of disbursements, ICICI Securities said in a report.
The bank is also introducing new products such as gold loans and vehicle finance in a bigger way to add to the existing product mix, Davis said. The bank had received inquiries for such products from its existing microfinance customers who have grown into high-end customers.
While the bank has not set a specific target initially, it will launch these products ahead of the festive season on a pilot basis through its 24 branches which are equipped to handle such loans. The bank will offer these loans to other customers, six months down the road, once the economy stabilises, Davis said.
On interest rates, Davis said that the bank has not yet increased the lending rates as many of its borrowers are recovering financially from the pandemic. The bank will try as far as possible to hold the lending rates, but if there is a pressure on increasing rates on deposits, the lender will not have much choice on the lending side, he said, adding that the bank has raised some of the deposit rate after the Reserve Bank of India (RBI) increased the repo rate.
The bank is also planning to complete the reverse merger of promoter Ujjivan Financial Services with the bank by calendar year 2023. For that, first the bank needs to complete the qualified institutional placement (QIP) issue of Rs 600 crore by December, which will be subject to market conditions, Davis said. After QIP, the bank can then start with the process of applying for the approval of the RBI and National Company Law Tribunal, he said.