As Ujjivan Financial Services becomes a scheduled bank, its average cost of borrowing will fall by about 200 basis points (bps), managing director and chief executive officer Sudha Suresh tells Shritama Bose. The company expects a loan growth of 18-20% in FY18, she added. Edited excerpts:
You have just become a scheduled bank. What does that mean for the organisation?
Scheduled-bank status in fact provides the bank the position to be recognised as any other bank. Basically, it means that we will be able to garner deposits from various institutions. So, institutional funding becomes much easier. It could be coming from corporates, cooperative banks to banks, mutual funds and insurance companies. Of course, we have managed our funding efficiently, but this opens the door for us in terms of getting funding from all these institutions also, we’ll be able to raise certificates of deposit (CDs) at very competitive cost. That is the impact in terms of the cost of borrowing. We see it coming down from the last financial year for what we have borrowed as an NBFC-MFI (non-banking financial company-microfinance institution) from various banks. Slowly, the bank’s grandfathered bank loans will run down in the normal course and we’ll also see some prepayment. So overall, we would see a reduction of 200 bps in terms of the average cost of borrowing.
What is the size of the liability portfolio at the bank?
As of now, the liability is just building up, but I think we’ll have something sizeable by this half year-end. On both the retail and institutional deposits, we should be doing good.
Which are the geographies where you have garnered most of these deposits?
We have converted 65 of our MFI branches into bank branches and we have been garnering deposits across all these branches, which are spread across various states. We are present in 24 states across 409 districts, with 457 branches. We will be converting about 160 of them into bank branches this year.
In the days after demonetisation, you had seen a lot of pressure in the MFI book. To what extent has that been brought under control?
To a fair degree, we have been able to bring that under control, in the sense that the normal business growth in terms of disbursements has already normalised. During demonetisation, we very cautious and we had restricted disbursements in some of the areas, depending on the performance and the credit quality. We had identified where payments were coming regularly and in a timely fashion. Those had come back in January and February with the instalment of November. So the repayment is with a three-month lag, but at least, there was an assurance that instalments were coming every month. We were not unduly worried because in these cases, the tenure of the loan was getting extended by three months.
The other part, where we did not receive payment due to various issues, we have provided for a large chunk of it. About `150 crore was the provision we made in the June quarter. If there is any remaining chunk that we identify in this quarter, we will provide for that in September. By September, we will be largely done with the provisioning requirement we may need to make on NPAs (non-performing assets) arising out of demonetisation.
Are you still facing collection challenges in any part of the country?
On current loans commencing January onwards, the repayment is going very good at a rate of 99.67%. For loans given earlier, some of them, the ODs (overdraft limits) have moved into higher buckets and that is where the collection team is putting its effort.
Have you seen any impact of the farm loan waivers on repayments?
At Ujjivan, no, because we don’t have any significant exposure to agriculture. Collateral impact could come in very selected areas, but I don’t that’s significant.
Which are the credit products where you are seeing the most traction?
We have planned for growth across all three verticals – microfinance, micro and small enterprise loans, and affordable housing loans. The last two have a small base because we started only two-three years ago. So in percentage terms, we will see higher growth in these two categories.
What is your full-year target for loan growth?
We are targeting a loan growth of 18-20% for this financial year.