Ujjivan Small Finance Bank Note – “Hold”: collections increased to 95% by September

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Notably, despite senior management attrition, Ujjivan’s journey towards building guaranteed assets (32% of loans) and granular liability deductibility (retail deposit share at 52%) is progressing well.

The net loss of Ujjivan Small Finance Bank (Ujjivan) of Rs 2.7 billion has to be seen in the context of cleaning up the books as previously discussed and reducing attrition, stabilizing processes and Board of Directors submitting two recommendations to the regulator for the position of CEO and CEO. Deployment of a 100 day action plan producing the desired results as shown in – i) reduction of PAR to 18.9% from 30.8% in June 21, ii) new connections in most segments of activity at the pre-Covid level and iii) management maintain its forecast of credit costs for the whole year of 11 to 12 billion rupees despite the provision of approximately 9 billion rupees in the first half of fiscal year 22.

Notably, despite senior management attrition, Ujjivan’s journey towards building guaranteed assets (32% of loans) and granular liability deductibility (retail deposit share at 52%) is progressing well. Given the improved collections, the sharp reduction in the PAR portfolio and the encouraging business volume since October ’21, he expects much better performance at S2FY22e. However, nearly 50% of the restructured books slipping into the NPA from resolution framework 1.0 raise concerns about the quality of short-term assets given the total restructured pool of Rs 15 billion (around 10% of loans). . It carries a total provision pool of 10%, including a floating provision of Rs 2.5 billion and 34% coverage on the restructured book. Maintain “hold”.

Continuous improvement in collections during T2FY22: efforts focused on collections led to a sharp reduction in the PAR 0 portfolio to 18.9% in September’21 compared to 30.8% in June’21. Collections improved steadily to 95% in September 21 against 78% in June 21; however, a greater loss of working days due to festivals in October ’21 resulted in a marginal drop in collections to 94%. Within the states, Maharashtra and West Bengal are on average behind in Pan-Indian collections, while Tamil Nadu has experienced a decline in collection for two consecutive months.

The cost of credit at S2FY22e is expected to be lower than at S1FY22: Ujjivan’s GNPL increased to 11.8%, while NNPL rose to 3.3% due to slippages higher at 6.6 billion rupees (5% of assets under management). In addition, the bank restructured loans worth Rs 9.6 billion in the second quarter of FY22, bringing the total restructured portfolio to Rs 15 billion or 10% of loans. Collections in the restructured portfolio also remained healthy at 86% in September’21. The total provision coverage is 10%, including a floating provision of Rs 2.5 billion. After a fair appraisal of his loan portfolio by a third party, he guided an estimate of the cost of credit of 11 to 12 billion rupees in fiscal year 22nd and he maintained the same amount despite having provided Rs 9 billion in the first half of fiscal 22nd, implying a much lower provision in fiscal 22nd.

The progress towards building guaranteed assets and granular liability deductibility is encouraging. Disbursements during T2FY22 improved strongly by 114% year-on-year and he continued to focus on higher disbursements to guaranteed assets. As a result, the share of guaranteed assets rose to 32% in September’21 against 30% in June’21. Going forward, Ujjivan will continue to focus on increasing affordable home loans, gold loans, vehicle loans, and MSME loans. Deposits grew 31% year-on-year to Rs 141 billion with a CASA ratio of 22.5% and retail deposit share of 52%.

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