Target for Ujjivan Small Finance Bank: 40% secured loan portfolio in 3 yrs

Ujjivan Small Finance Bank (SFB) is planning to boost its secured loan portfolio to 40 per cent within three years, supported by revamped strategies across its business.

Ittira Davis, managing director and chief executive officer of the Bengaluru-headquartered lender, shared this goal in an interaction with Business Standard.

The current secured portfolio of the lender stands at 28.3 per cent.

Commenting on the expansion of the secured loan portfolio, Davis said, “In three years, we want to see our secured portfolio at 40 per cent, from where it is today. Affordable housing has been the primary contributor to the growth of the secured segment, and we’ve restructured its marketing and management aspects. Similar revamps are underway for micro, small and medium enterprise and vehicle loans.”

As the bank moves towards a 60:40 portfolio distribution, with 60 per cent unsecured and 40 per cent secured, Davis noted, “Half of the secured segment will come from affordable housing, i.e., 20 per cent of the entire portfolio, while other segments will contribute the remaining 20 per cent.”

The bank’s capital adequacy ratio saw an impact of 80 basis points after the Reserve Bank of India’s (RBI’s) decision to increase the risk weight on personal, unsecured, and other loans.

In the October-December quarter (Q3) of 2023-24 (FY24), disbursement for affordable housing reached Rs 4,417 crore, nearly 16 per cent of the total loan book of Rs 27,743 crore. Asset centres in 16 strategic locations have been crucial in efficiently managing both disbursements and collections for the housing segment.

On collection efficiency, Davis said, “Teams focus on the lower buckets to ensure collection takes place before it starts going into the 30-plus and the 60-plus buckets. As soon as any issue arises, it is promptly addressed. Staff visits customers, identifies issues, and ensures early collection.”

In Q3FY24, the asset quality of Ujjivan SFB was stable, with the gross non-performing asset (NPA) ratio at 2.1 per cent compared to 2.2 per cent in the second quarter (Q2) of FY24, and the net NPA ratio was flat at 0.16 per cent sequentially.

The overall deposits of the bank grew by 28 per cent year-on-year to Rs 29,669 crore, with current account savings account (CASA) deposits at Rs 7,556 crore.

The CASA ratio improved from 24.06 per cent in Q2FY24 to 25.5 per cent in Q3FY24, supported by increased traction in the new product Maxima and the digital banking segment. The bank aims to bring the CASA ratio to around 30 per cent.

The net interest margin of Ujjivan SFB was 8.8 per cent, lower than 9.4 per cent in the year-ago period due to increased costs and elevated interest rates. The cost of funds for the bank stood at 7.5 per cent in Q3FY24 as against 6.6 per cent.

In terms of expansion, Ujjivan SFB, with 739 branches, plans to expand to 752 branches by the end of FY24. Davis admitted that the bank faces fierce competition in microfinance, vehicle finance, and housing segments from both non-banking financial companies and traditional banks. However, offering multiple products compared to single-product institutions and focusing on digitising services provide the SFB a competitive edge.

Commenting on plans to raise capital, Davis added that the capital adequacy ratio of the SFB was around 25 per cent and did not need additional capital for organic growth. However, the bank remains open to exploring inorganic growth options in the future, which will require funds.

Speaking on the repo rate, Davis expects the RBI to start cutting the repo rate by the second half of 2024-25.