Ujjivan SFB to have 50% assets in secured loans over next 2-3 years

Ujjivan Small Finance Bank, after facing headwinds amid the COVID-19 pandemic, is charting out a more balanced growth path by increasing its secured loan book to 50 per cent of total assets in 2 years

Ujjivan Small Finance Bank, after facing headwinds amid the COVID-19 pandemic, is charting out a more balanced growth path by increasing its secured loan book to 50 per cent of total assets over the next two-three years.

As part of its asset diversification strategy, the lender has already resumed auto loans and plans to enter the gold loan space shortly.

The Bengaluru-based lender, which began its operation as a micro-financier in 2005, converted itself into a small finance bank in 2017. It returned to black in the March 2022 quarter with a net income of Rs 127 crore, but closed FY22 with a net loss of Rs 415 crore, mauled by the impact of the pandemic.

The lender has 68 per cent of its assets in the unsecured micro loan segments as of March 2022 and the remaining 32 per cent (up from 27 per cent in FY21) is secured accounts with housing and small business loans.

"Microlending will continue to be the largest asset base for us in the near-term, but over the next two-three years we want to increase the share of our secured book to 50 per cent from the 32 per cent now, so that we don't fall back into the bad loan piles as happened in the past two years, Ittira Davis, managing director and chief executive of Ujjivan, told PTI.

"As part of this asset base diversification, we have just re-launched our auto loan portfolio (two-wheeler financing), which we had discontinued during the pandemic, and we hope to end this fiscal with book at Rs 120-150 crore, Davis said.

"The second step is to enter the gold loan business which is a fully secured and high-margin segment for all lenders. We hope to launch this by October/just ahead of Diwali," he added.

He said almost 60 per cent of the auto loan customers are existing microlenders while the rest are new customers.

Davis expects his asset base to touch Rs 20,000 crore this fiscal, up from Rs 18,162 crore in FY22.

The company registered a 20 per cent growth in asset base in FY22 as compared to the preceding fiscal.

Davis said he expects the record loan sales in the fourth quarter to continue in FY23 as well. In the March 2022 quarter, it disbursed the highest amount of loans at Rs 4,870 crore, Davis said.

Ujjivan's deposits grew 39 per cent to Rs 18,292 crore, led by a 27 per cent rise in current account saving account, Davis said.

The bank saw a turnaround in asset quality, with gross NPAs (Non-Performing Assets) falling from 11.8 per cent in Q2 and 9.8 per cent in Q3 to 7.1 per cent in Q4, as collection efficiency touched 100 per cent by March, and net NPAs slipped to 0.6 per cent from 1.7 per cent.

The bank has a provision coverage ratio of 92 per cent with a floating provision of Rs 260 crore, he said, adding it wrote off Rs 200 crore of bad loans in the fourth quarter of FY22. Its total provisions stood at Rs 1,330 crore or covering 7.3 per cent of the loan book.

The company went public in December 2019 and has to increase public float to 25 per cent by this December from 18 per cent now. This is being done through a Rs 600-crore QIP issue, after which it will go for a reverse merger.

Davis expects the equity sale to happen in the second quarter of FY23.