Ujjivan Small Finance Bank sees shrinking interest and fee incomes due to loan moratorium this year

Ujjivan Small Finance Bank (SFB) is expecting contraction in interest and fee incomes this fiscal due to business disruptions caused by COVID-19 and ensuing lockdowns, its annual report has said. The bank, however, said that the pandemic situation had a minimal impact on its books in FY 2019-20 as the nationwide lockdown was imposed in the last few days of March, by which time most of bank's collections had already come.

The 2019-20 annual report said the lockdown "did impact the typically high year-end growth momentum of March, and our volumes stood lower than that envisaged earlier and significantly lower than that in the previous month, which affected the interest and fee income".

The surplus liquidity carried as a buffer for the crisis period has led to a slight increase in finance cost for the last week of March, it said.
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The benefit of RBI dispensation on NPA recognition norms were applied on the moratorium portfolio, and it prevented any spike in credit cost, as per the report.

"Although we shall continue to accrue interest income on the outstanding portfolio including those accounts that opt for moratorium, there will be an overall contraction in interest income and fee income on account of lower business volumes due to lockdown and adherence to social distancing norms," the bank said in it outlook for 2020-21.

However, the bank said it expects a steady reduction in cost of funds due to the several stimulus measures of the RBI to enhance liquidity in the banking system.

The lender added that the impact on credit cost remains to be seen at the end of the moratorium and the end of dispensation on NPA (non-performing assets) classification at the end of August 2020.

Citing customer surveys, Ujjivan SFB said there have been temporary dip in household income levels in the wake of COVID-19 crisis and addressing the credit needs of this segment would help customers resurrect their businesses and livelihoods.

"Given the ongoing crisis situation, we visualise it to be a good time to sensitise our customers and their families on basic savings and banking behaviour and promote goal based deposits, as our deposit rates remain attractive," it said.

The bank said as digital payments have increased due to the pandemic, Ujjivan considers it as a good opportunity to expand initiatives and increase adoption to digital channels.

"Our continued efforts on contactless and digital banking services will stand us in a good stead to further our outreach and build on this opportunity. Moreover, the volatility in the market yields is expected to help in the growth of institutional deposits," it said.

Going forward, bank's strategy would be to manage the effects of lockdown and it will set in motion initiatives such as curtailing credit cost, re-starting business with repeat clients, scaling deposits and Sampoorna banking business.

Bank's Sampoorna Family Banking solution was launched to address every household's comprehensive banking requirements, ranging from the youngest member to the senior citizens.

The bank said it will also penetrate into new geographies and further push the growth of rural banking.

"We will also introduce consumer durable loan, micro loan against property and use an analytics-based model to graduate group loan customers. Additionally, we will simplify our digital pre-approved loan process with the help of data analytics and expand our UPI QR based payment solutions for merchants via UPI acquirer platform and our UPI PSP Mobile app," Ujjivan SFB said in the report.

Besides, the lender said that it will step up its cashless repayment further through its Money Mitra initiative and will offer banking services from neighbourhood shops and pilot cash collection points.

"We are also planning to launch a voice-, video- and vernacular-based, easily navigable mobile banking app for microfinance customers to drive digital usage," it said.

Moving ahead, the bank will expand the product base with new channels of loan EMI payment via popular and easy-to-use platforms -- Popular UPI apps, BBPS, CCAvenue and Billdesk and use of BC and digital pre-approved individual loans via phone banking and mobile app, it said.

Also, the bank will concentrate on semi-formal and formal MSME segments, led by its diversified product offering and relationship based approach.

Further, the bank said it plans to launch fintech partnerships in supply chain finance domain to provide an additional lead channel and will also introduce digital onboarding platform for improved delivery processes.

During 2019-20, Ujjivan SFB registered a 28 per cent growth in its gross advances at Rs 14,153 crore as on March 30, 2020.

Deposits of the bank were up by 46 per cent at Rs 10,780 crore while the retail deposits rose 73 per cent to Rs 4,724 crore.

Bank's total income in FY20 jumped by 49 per cent to Rs 3,026 crore, earning net profit of Rs 350 crore, which was higher by 76 per cent from a year ago.

Ujjivan SFB, which began its operations in Februray 2017, got listed into the capital market in December 2019, which was termed as one of the most subscribed IPOs in 2019.

The bank with its branches spanning across 24 states and union territories had a customer base of 54.4 lakh as on March 31, 2020.