Aim to strike balance between secured, unsecured loans: Ujjivan SFB CEO

Ittira Davis, managing director and chief executive officer, Ujjivan Small Finance Bank (SFB), in conversation with Bhaskar Dutta says the margins may face some pressure in the short run, even though lending rate hike the bank plans from October 1 will address this. Edited excerpts:

You posted a strong set of numbers in the first quarter (Q1) and said there is continued traction on collections at 99 per cent. What is your estimate for loan growth for the entire year?

For the current financial year (2022-23), we are looking at a loan growth of 25-30 per cent. We have seen good traction actually in the third and fourth quarter of the previous financial year (2021-22). That has continued in Q1. The second quarter is also looking upbeat.

What will the structure of the loan book look like? You have said the bank will want to reduce the share of microfinance loans.

Unless there are these black swan events, microfinance is a good business to be in and has its own business model. But it tends to be mostly unsecured loans. We are trying to strike a balance between secured and unsecured. A part of that can come from microfinance customers since they have been dealing with us over the years.

What we are trying to do, for instance, is a two-wheeler secured loan. We are looking at secured gold loans as well.

We have also grown the affordable housing book, which is currently 15 per cent of our portfolio. The micro/small enterprises are at about 10 per cent.

We will be looking at increasing our secured portfolio. Perhaps by the end of this financial year, it will be in a 65:35 ratio from the present-day 70:30. We’ll move it slowly to 60:40 and in five years, see it at a 50:50 ratio.

You have announced some hikes in deposit rates. Yours is among the highest for SFBs. What is the future strategy for deposit mobilisation, particularly on the retail side?

The retail deposit mobilisation is our focus right now. We’d like to grow the retail base - all our branches are working towards it. We have given 7.5 per cent, which is linked with 75 years.

Those are good rates. We will watch the response of the central bank to the current inflationary environment. If interest rates go up, we’ll have to be reactionary.

In the short run, net interest margin (NIM) may get squeezed somewhat by a few basis points (bps), but there is no need to be alarmist because of the growth of the loan book. The cost-income ratio is under control. Bottom line shouldn’t be a problem either.

Can you provide a numerical estimate for NIM?

NIM has been around 10 per cent. We expect it to fall by about 50 bps to 9.5 per cent in the short term. We will see how the situation plays out before we decide to raise our lending rates. Many of our customers have had a tough time during the pandemic. In response to that, we did defer the move to hike rates. But October 1 onwards, we will be raising our interest rates by about 50 bps on the lending side.

What is the timeline to complete the reverse merger with the holding company (holdco)?

It is a work in progress. We first need to bring down holdco shareholding because the minimum public shareholding has to go up to 25 per cent by December, from the current 17-18 per cent. That is three years from the time we did our listing.

That will act as a catalyst for us to go back to the Reserve Bank of India (RBI) to seek its concurrence and then get back on track to complete the reverse merger.

From the time the qualified institutional placement is complete and we get RBI approval, we expect it’ll take a year for the National Company Law Tribunal (NCLT). It’s the NCLT that has to approve. And the holdco and the bank are both registered in Bengaluru. So it’s the NCLT in Karnataka that has to review it. Since both companies are there, we expect the process to be reasonably quick once RBI approval is in.