Ujjivan Small Finance Bank Entering Gold Loan Segment Shortly, Says CEO

With an aim to increase its secured asset portfolio, Ujjivan Small Finance Bank Ltd. is entering the gold loan segment shortly and also extending auto loan offerings to non-micro borrowers.

Like other small finance banks, currently, as much as 70% of Ujjivan's assets are unsecured/without collaterals, and a vast majority of its customers are micro-loan borrowers. The remaining 30% are under secured loan category. The management has set a target of having half the assets in the secured segment over the next three years.

The Bengaluru-based microfinancier-turned-small finance bank is also expecting to hit over 30% this fiscal and take its loan book to around Rs 25,500 crore, buoyed by the sharp spike in disbursals in the June quarter when its sales jumped over four-fold.

Since the beginning of its journey as a small finance bank in August 2017, Ujjivan has been facing headwinds on the asset quality front.

However in the April-June 2022 quarter, the lender's net income stood at Rs 203 crore as against a net loss of Rs 233 crore in the Covid-hit June 2021 quarter. The preceding quarter of January-March 2022 was also profitable with a net income of Rs 127 crore.

"Over the next fortnight or so we will be offering gold loans to our MFI customers. We'll pilot it across 24 branches and will extend it gradually and hope to close the current fiscal with a gold loan book of around Rs 120 crore," Ittira Davis, managing director & chief executive of Ujjivan, told PTI.

"Similarly, we're planning to extend two-wheeler loan facility, which we resumed in March quarter for our MFI borrowers, to all customers from the last quarter of this fiscal," he said.

Currently, this is a Rs 200-crore book and Davis expects it to grow to Rs 350 crore by March 2023.

He said almost 60% of the auto loan customers are existing micro lenders while the rest are new customers. The bank had stopped auto loans during the pandemic. Its other secured book includes home loans.

While gold loan is a more-than-fully-secured asset given that the regulator has capped such loans to 75% of the market price of gold, vehicle loan is 85-90% of the ex-showroom price of the vehicle.

On the loan sales plan, Davis said his optimism comes from the record Rs 4,326 crore disbursals in the first quarter of FY23, as against Rs 1,311 crore a year ago. This helped it grow the loan book by 38 per cent to Rs 19,409 crore from Rs 14,037 crore in June 2021.

"We are firing on all cylinders. Recovery is fully back as all parts of our business are normal now and so is the collections. We are on a solid recovery path and are confident of closing the year with over 30% loan growth and take the loan book to around Rs 25,500 crore by March 2023," Davis said.

The first quarter marks a great beginning to the new financial year. This is because "our stabilisation efforts, began in the December 2021 quarter, is already bearing fruit as reflected in the turnaround in March 2022 quarter when we reported Rs 127 crore net income, and the June quarter marks all-round growth and profitability," he said.

On collections he said it is strong at 99% and this has helped gross non-performing assets and net non-performing assets declined to 5.9% and 0.1%, respectively from 7.1% and 0.6% in March 2022 and from 9.8% and 2.6% in June 2021, respectively.

Apart from near total collections, asset quality improvement was also due to write-offs and recoveries, with Q1 recoveries at Rs 215 crore and write-offs at Rs 65 crore, Davis said.

Its total income rose 40% to Rs 1,000.42 crore in Q1, of which interest income was Rs 905.37 crore, up 41.1%, and other income grew to Rs 95.1 crore from Rs 73 crore. The key net interest income, which is the interest earned after interest payout, rose 56% to Rs 600 crore during the quarter.

In an interview to PTI in May, Davis had said the bank would be charting out on a more balanced growth path by increasing the non-microloans/secured loan book to 50% of assets over the next two-three years, and as a first step towards this, it has resumed auto loans.

Ujjivan, which began as a microfinancier in 2005, has 66 lakh customers who are served by its 16,664 employees through 575 branches spread across 248 districts and 25 states.