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What does the current NBFC sector crisis mean for small financial banks like Ujjivan?
There is no direct impact on small financial banks in terms of liquidity. We are not an NBFC. But what has happened is that our holding company, which has become public, is a financing company. Thus, when the NBFC list is published, we will also include it. When the NBFC shares plummeted, we also found that we were slipping with them.
What about liquidity problems?
We have no problem. In fact, this offers us opportunities because microfinance is one of our main activities. Thus, many MFIs, who are now NBFCs, find themselves in a much more difficult situation, with some of them having the habit of self-financing through NBFCs. But we have our own resource base. This gives us an opportunity, because our competition for microfinance has decreased.
Given that 80% of your loan portfolio is microfinance, do you see any concentration risk and, therefore, the need to diversify your portfolio?
We have already begun to diversify into affordable housing and funding for MSMEs around three years ago. But having started as a bank, on the loans side, we also started to focus on personal loans and vehicle financing. By becoming a bank, we are able to increase our own deposits. So we have a whole bank in place, as well as other channels such as telephone banking, mobile banking, and Internet banking. We try to supply our depots through all these channels.
What is the impact of the Supreme Court decision on the use of Aadhaar?
As far as we are concerned, the majority of our clients are microfinance clients. For them, the transfer of TCD is a key benefit we provide them. So, from this point of view, nothing has changed, because we can use e-KYC. We had developed the entire account opening process using a paperless portable device using the Adhaar backbone. This will continue. But for bank branch customers, where there are no DTT transfers, we can no longer use the Aadhaar-based e-KYC and opt for paper-based processes. This could increase our operational costs for these customers. But the majority of our clients are microfinance clients, who migrate from our MFI clientele.
Competition from NBFCs and private banks is also increasing in the space reserved for small financial banks. How do you deal with this competition?
In microfinance, banks already have a huge portfolio. We have been competing with banks for a few years. But we are also diversifying into other products. In some segments, there will be pressure from banks and others. But we also impinge on their activities such as personal loans, vehicle financing. The big opportunity for us is on the side of the depots, which were to be serviced by public sector banks and they were not able to serve.
The small financial banks that managed to make profits processed NIMs of up to 8%. Are they sustainable?
Over time, they will go down. But when we increase, there are two things. In the first two years, we invested in infrastructure and technology. Our operating costs have therefore increased. We built a base to increase. Once we increase, our operating costs will decrease. In addition, as we build our retail deposit base, our fund cost will also decrease. So, the NIMs will not be the same as what we have in microfinance. Banks (commercial) operate at 4-5% of the NIMs. He will move to this level. For this to happen, our operating costs must be reduced. It will take time. Our retail deposits must also increase so that our filing costs decrease.
Ujjivan also makes headlines for his succession planning. Why now?
For most of my career, I was at Citibank. We had a brilliant leader named John Reed, who was the president. But his estate planning was awful. He virtually destroyed Citibank, which was so poorly managed that it was turned over to another company, Travelers. It destroyed Citi for a long time. I learned from this lesson that as a good leader, it is my responsibility to ensure a smooth transition, and that this should go to someone who will take Ujjivan to the next level.
What is the status?
Our goal is that over the next seven years we will grow from four to 40 million customers. So the person we want to hire should have this type of training to move Ujjivan from four to 40 million in seven years. For that, we need a younger person and I will gladly leave it to this person. Largely, it will come from people with solid experience in digital technology, etc. We have identified people both inside and out. Basically, actually. We will apply to RBI in December with three names.
When do you plan to become a commercial bank?
We worked on a holding company structure and our former NBFC became a holding company, approved by Sebi and RBI. Sebi because we had an IPO. We are already listed, the holding is listed and the bank is not listed. After three years, we have to register the bank. We therefore examine the option of the reverse merger of the holding company into a bank.
What are the prospects for your bank's performance?
Our performance was good. We expect our real growth to occur in the last two quarters, as microfinance has historically grown dramatically during the holiday season. In addition, last year was catastrophic because of the demonetization and our goal was that, anyway, we had to end up in the dark. Our cost of credit was 323 crores and even after that we were able to close in black. We had to slow down our transition to a bank to control our costs last year. We will also reduce the high cost debt.
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