I am glad to share with you that our overall financial and business performance in the financial year that passed by was quite strong and healthy.
Consolidated net profit posted a smart recovery at Rs.198 Crore from Rs.7 Crore. Net interest income rose by 41% over the previous year and net interest margin stood at 11.1%. Loan delinquencies were contained.
Gross non-performing loans stood at 0.9% and net at 0.3%. Our funding cost dropped from 9.0% to 8.5%. Cost/Income ratio however rose and this spurt was primarily due to the expansion of branch network, one-time investment on modern technology platform and the additional manpower cost to man the newly opened branches. Concerted efforts are on to bring down our cost/income ratio.
Turning to top line numbers, loan book registered an impressive growth of 46% during FY19 and the outstanding loan book at March 31, 2019 stood at Rs.11,049 Crore. Our total active customer base increased by 19% this year, from 39 Lakh to 46 Lakh, with over 27 Lakh customers having deposits. MicroBanking loans grew by a respectable 34%. Thrust on portfolio diversification continued and non-MFI portfolio constituted 15.3% of the loan book, as against 7.3% in FY18. We were able to fund 67% of our loan book with deposits. Retail deposits stood at 37.1% of total deposits against 11.3% in FY18. CASA ratio also improved from 3.7% to 10.6%. Our network increased to 524 branches, including 474 banking outlets and 50 asset centers.
You will find detailed discussions on our financials and performance elsewhere in the Annual Report.
I will now update you on some of the key regulatory developments.
Listing of Ujjivan Small Finance Bank Limited
You may recall, as a non-banking finance company, Ujjivan Financial Services Limited, did not have any promoter/promoter group. We had to, therefore, opt for the ‘holding company structure’ to be eligible for applying for a small finance bank licence. Once we received the ‘in-principle approval’ from the RBI for setting up a small finance bank, we came up with our IPO to comply with the regulatory guidelines that the majority ownership of small finance bank should lie with domestic investors. Thereafter, we formed our fully owned subsidiary ‘Ujjivan Small Finance Bank’ and transferred our operational business undertaking to the newly set up entity through a slump sale. The holding company was thereafter registered with the RBI as a core investment company (NBFC-ND-SI-CIC). As you all know, there was overwhelming response from investors and our shareholding is well diversified among Indian public.
We have close to 75,000 individual shareholders holding shares of the paid-up value of less than Rs.2 Lakh.
The scrip is actively traded, and the price fully mirrors the performance of the newly set up Ujjivan Small Finance Bank. Based on our publicly disclosed financial information of our Company and our Bank at periodical intervals, the investors, depositors and creditors primarily assess the level of risk of the Bank and make investment decisions. Thus, we are already subjected to the rigours of ‘market discipline’ and the pricing information of the holding company shares is indicator of the bank’s financial health. We had also more than adequately complied with the regulatory objectives for which we were licenced catering to the financial needs of the underserved and unserved. It is in this background that we were sanguine that the regulator may relax yet another licencing stipulation viz., listing of Ujjivan Small Finance Bank on the domestic bourses. We were in constant dialogue with the regulator on this matter and represented that dual listing of both the holding company and the small finance bank may be superfluous and may adversely impact the shareholder value of the holding company. If this were not feasible, we sought their permission to collapse the time frame set and permit the holding company to do a reverse merger with the small finance bank to protect the shareholder value. The regulator has advised us that since listing of SFB was a licencing condition, we had to comply with the same.
As for reverse merger of our Company with our Bank, the regulator has kept the door open but will take a view on this closer to the fifth year. We are, therefore, now working on the modalities of listing Ujjivan Small Finance Bank for minimum percentage of capital permitted by the regulators and will initiate work on the reverse merger of the two entities closer to our fifth anniversary. We continue to endeavour to the best of our potential to safeguard the Company (HoldCo) shareholder interests.
On tap licencing of small finance banks
The Reserve Bank of India has recently announced that since the small finance banks have attained their mandate of furthering financial inclusion, there was a case for more players to be included to enhance access to banking facilities to the small borrowers and to encourage competition. The RBI has, therefore, proposed to issue the Draft Guidelines for ‘on tap’ licencing of small finance banks by the end of August 2019. This is a welcome development and hopefully the guidelines will incorporate the smooth functioning of banks with holding company structure.
Small finance banks need less stringent regulatory/supervisory framework
Since small finance banks now form a ‘specific category’ among the licenced banking entities, it is hoped that the regulator would fine tune their regulatory and supervisory guidelines suited to these entities, reckoning their business model and risk profile. As long as these banks fulfill the objectives for which they were licenced and comply fully with critical prudential guidelines like capital adequacy, income recognition, asset classification and provisioning, liquidity management and corporate governance standards and their risk profile is acceptable, there is a case for easing the policy guidelines appropriately to minimise the regulatory cost. Regulatory compliance cost hit the small banks hard.
Elsewhere in some of the developed financial markets, there is a growing recognition that volume and the complexity of financial regulation are, for small and medium sized banks, extremely onerous and disproportionately costly. To avoid excessive compliance costs or regulatory burden for smaller non-complex banks, which could dampen their competitive position, a proportionate approach is advocated tailoring regulatory requirements to the bank’s size, systemic importance, complexity and risk profile. The Chairman of Financial Stability Institute, Bank for International Settlements at the recently held BIS/IMF policy implementation meeting specifically adverted on this issue of proportionality in financial regulation and supervision.
Before I conclude, on your and the Board’s behalf, I extend a warm welcome to Mr. Nitin Chugh, CEO designate of our Bank. He will take over as the CEO of the Bank effective December 1, 2019. Given his extensive retail and digital experience, we are confident he would take the Bank to newer heights and position the same as a mass market bank. We hereby seek your full-hearted support to Mr. Nitin in all his business endeavours.
I am also glad to share with you Mr. Samit Ghosh, the visionary leader and founder CEO of Ujjivan will continue to be associated with Ujjivan, mentor the new CEO designate and ensure his smooth transition to the leadership position in the Bank and thereafter continue to provide his wise counsel and guidance to Ujjivan, although within different capacity.