Ujjivan: Serving the underserved

It has been more than a year since Ujjivan Small Finance Bank (SFB) launched its banking operations, and it is slowly and successfully transitioning from a Microfinance Institution (MFI) to a small finance bank, though it had a tough phase during demonetisation period.

Ujjivan started off as a Non-Banking Financial Company (NBFC) in 2005, and went on to become one of the leading MFIs. Ujjivan Financial Services Limited is the holding company and promoter of its 100% subsidiary Ujjivan SFB.

The microfinance institution was one of the 10 entities to receive in-principle licence from the Reserve Bank of India to set up SFB operations. Ujjivan SFB began its journey at a time when the microfinance sector started feeling the heat of demonetisation. With less liquidity in the economy, the repayment rate started coming down, and the first challenge with the newly started SFB was to handle this.

It is said that due to note ban, the microfinance sector had lost one year of its earnings, and had written off anywhere between Rs 4,000 crore to Rs 5,000 crore of loans.

"When we started, we had a number of tasks ahead of us like how do we manage the portfolio that was seriously impacted by demonetisation. At the beginning of the fiscal year, total portfolio loans under default or Portfolio At Risk (PAR) was Rs 650 crore, and as of December 31, 2017, it has been reduced to Rs 384 crore," says Samit Ghosh, MD and CEO of Ujjivan Small Finance Bank.

The SFB took losses in the first two quarters of this financial year, and in the third quarter it went ahead to clear the remaining small portion of the portfolio with Rs 34 crore of write-off. It registered a net profit of Rs 29 crore in the third quarter.

"The fourth quarter will be positive for us and by the end of the fiscal year, we will have fully recovered from demonetisation," says Ghosh.

After demonetisation, all microfinance companies had a tough time in recovering dues, as they had piled up. Ujjivan SFB created a separate collection team to recover dues that were over three months.

Over 600 collection officers were exclusively focusing on collections. "We were looking at the branches that had more than 5% doubtful debts in the book and the collection team was focused on recovering dues. At the same time, we were continuing to lend our customers," says Ghosh.

Credit costs are trending down quarter on quarter as demonetisation impact has been largely provided for in the first two quarters. The collection efficiency continues at 99.7% for all new business from January 2017. Ghosh says demonetisation is now behind us and our business is back to normal.

Growth plans for FY19

Ujjivan SFB is looking ahead and it expects FY19 to be robust in terms of growth and also plans to focus on new verticals. It had slowed down the conversion of microfinance branches into bank branches, and now with the beginning of this fiscal, it wants to start the conversion again.

"We had slowed down so as to cut the operative cost. According to the RBI, we have three years time to complete the conversion of microfinance institutions into bank branches. At present, of 450 microfinance branches, we have converted 167 into bank branches and at the end of FY19, we would have converted all and we will be having close to 510 bank branches, of which 127 will be unbanked rural branches," says the MD and CEO.

In this fiscal, the SFB will also focus on its deposit business both retail and institution. It has deposit base of Rs 2,437 crore as of December 31, 2017. The bank has revamped its MSE and affordable housing business and expects their contribution to Ujjivan Financial Services to grow significantly in the overall loan book. It plans a separate rural vertical like agri-lending.

"We are planning a lot of new businesses. With third-party tie-ups, we will be providing both general and health insurance to customers. We are also looking at mutual fund business in FY19, and we will also be providing motor cycle finance, for which we have already started a pilot," says Ghosh.

The SFB is currently running a pilot in few markets with insurance companies such as Bajaj Allianz Life Insurance, Birla Life Insurance and HDFC Life Insurance.

The bank has invested heavily in technology and it designs tech-based solutions to make banking paperless, fast and available within easy access.

"We are providing a whole lot of benefits to the customers such as doorstep banking using handheld devices, mobile and Internet banking, phone banking, access to ATM through biometric devices and Aadhaar enabled debit cards, among others. At each of our branches we will have dedicated staff who will go to customers to teach basics like using phone and mobile banking, and use of biometric ATM. Our customers can open an account at their doorsteps through the hand-held devices that our field staff carry. It is a self-service and assisted service," says Ghosh.

The bank serves over 37.13 lakh active customers through 441 branches across the country. It employs about 10,880 people. Its Gross Loan Book stands at Rs 7,095.28 crore.

According to Reliance Securities' recent research report, AUM analysis suggests that Ujjivan will sustain robust growth in the foreseeable future led by large market size and low formal financing penetration.

"It has built a niche presence in lending to self-employed individuals, which will aid its strong growth trajectory in coming years," the report said.

It believes that most of the segments in which Ujjivan SFB operates provide a lucrative opportunity to sustained strong growth owing to under penetration and growing market size. This also would help it to command relatively higher yield on loans, which would eventually lead to maintain healthy NIM.

Ujjivan Financial Services also runs a robust financial literacy programme in collaboration with Parinaam Foundation. Customers are taught about the importance of savings and benefits of opening a bank account and goal-based deposits that can support their family's future.

Karnataka, one of key markets

For Ujjivan SFB, Karnataka is one of the key markets. With 22 banking outlets and 5.14 lakh borrowers, it employs around 2,000 people in Karnataka alone. "Our retail deposit base in the State is Rs 53.8 crore," says Ghosh, adding that the bank is spreading its reach to the un-served and underserved people in rural areas.