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We closed the year with spectacular financial results:
- Profit after Taxes grew by 134% to Rs,177 crore.
- Gross Lean book grew by 65°% to 3 5,388.6 crore
- Our Gross Non Performing assets(GNPA) increased marginally to 0.15%ofour portfolio with a cumulative repayment rate of199.81%
- Our Cost to Income [Ratio declined from 60.4% to 51% and Operating Expense Ratio (declined from 8. 5% to 7.5%.
- Return on Asset ef3.7ore compared to 2.5% in the previous year.
- upturn on Equity of 10.3 %o compeered to 13.7% in the previous year.
T his resulted from achieving economic of scale, high her level of efficiency and keeping credit costs at a negligible level. We moderated our Gross Loan Book grown to 65% compared 102%inthe previous year.
Our branches grew by 11% and employees by 14%. This year Ujjivan scaled new heights in financial terms as an NBFC-MFI. However we measure our success or failure over the last ten years encrust if financial numbers but also in term:; of our efficient services across major stakeholders.
Customers: T his year we crossed the miles to ne of 30 lakh customers. We acquired more than 10 lakh new customer second year in a rove. Customer retention rate has remained at 86.3 %n, one of the highest the industry. This is despite the farthest we had hornpout existing customers to comply with the regulatory requirement that not more than two MFIs can lend to a customer. The high customer retention rate and the new customer acquisition were key factors in our gross loan book or owing by 65%o to Rs, 5,389 crore and is a reflection of how well customers value our relationship.
Employees Our employee base increased by accost a 1,000 this year reach in 8,049 and our staff retention rate was 82%. Wearer among the top 3 companies to work for in India and number one in tine micro finance sector in the Economic Times and Great Place to Work Institute surely.
One of the unique employee benefits is the Employee Stock Option Plan (ESOP) schemes for all employees based on performance. This was instituted in 2006 and the sixth ESOP scheme was launched in 2015. Over 54% of our current employees across the organization are recipients of the ESOP. Post our IPO in April 2016, the employees could for the first time see the market value of the ESOPs they hold and this generated excitement and pride in ownership of the Company.
Investors In the last two years we have been able to provide exit to many of our early investors - Rs,300 crore through private placement in the year 2014-15 and Rs,524 crore through the IPO in 2016-17. All the divesting foreign investors were able to get a return on their investments in Rupee terms exceeding 20%. We have enjoyed excellent relationship with all our institutional investors, many of whom have made very valuable contribution to the Company as members of our Board and also established special relationship with our sister organization - Parinaam Foundation. The remaining individual investors who are largely our angel investors who remained invested for over 10 years are overjoyed in seeing their investment grow to 35X at current market prices.
Ujjivan’s Initial Public Offering (IPO) was a great success and it is covered in a separate section. In this letter I will focus on the objectives of the IPO.
The immediate need to do the IPO was to meet the Reserve Bank of India’s pre-requisite that the Small Finance Bank has to be majority domestic owned. In the past, for the microfinance sector equity has been largely funded by foreign institutional investors. Our foreign ownership was in excess of 91%. Given the size of our domestic equity requirement the only alternative was to raise it through IPO restricted only to domestic investors. The domestic market is limited in terms of institutions mainly to insurance companies and mutual funds. The high net worth individuals and public were an uncertain segment due to limited familiarity with the sector. Though finally both these groups very actively participated in the IPOs of both the microfinance institutions, the journey was challenging and required a lot of sessions to bring about familiarity of prospective investors. The journey became more difficult with the announcement of large NPAs by banks and consequent impact on the entire BFSI sector. The results finally indicated that investors are optimistic about the new type of financial institution initiated by RBI - the Small Finance Bank and are not colored by the dismal financial performance, largely of the public sector banks.
For Ujjivan the IPO has a special benefit for majority of the employees across all segments of the organization, who are holders of ESOPs which have been issued almost since inception.
A large number of these employees are our field staff and their supervisors, who are not familiar with equity markets. After this IPO the employees can exercise their ESOPs and build a ‘nest egg’ for their family.
Finally, it is always our long term objective to have a well-diversified ownership structure. Two years before the IPO, the top ten institutions owned over 91% of Ujjivan. Just prior to the Pre-IPO and the IPO top ten institutions owned more than 81% of the institution. Currently we have more than 41,000 investors in Ujjivan. The institutional investors are balanced between domestic and foreign. More importantly, Ujjivan is not dependent solely on large institutional investors to raise future capital and can freely access the large domestic capital markets. This will provide long term stability in raising equity capital.
Ten years on the NBFC platform with stellar performance brings a close to one of the major chapters in Ujjivan’s history. The RBI opened up a new platform on November 27th, 2014 by issuing guidelines for Small Finance Bank (SFB).These will be specialized banking institutions to provide financial inclusion to the vast un-and under-served sections of our population and not the regular universal bank which largely serves the middle class and affluent in the retail segment and large corporate and institutions in wholesale business. This was done after considerable dialogue with the industry, largely represented by the Micro Finance Institutions Network (MFIN). I had the honor of heading MFIN as the President and worked closely with Alok Prasad who was the CEO during this crucial phase. Much to our delight, on October 7th, 2015, RBI issued an in-principle license for ten institutions of which eight were microfinance institutions including Ujjivan. This will enable us to move to a more stable and less risk prone structure of a bank. NBFCs come under periodic threats on issues like the state money lenders acts; in general finance companies have much lower stature compared to banks among the public. NBFC-MFIs are dependent largely on a single source of expensive funding from banks and hence vulnerable; and are constantly under competitive threat for their successful line of business from banks. More importantly, the SFB will allow us to pursue our long cherished dream of being able to provide a full range of financial services and after five years of operation convert to a full-fledged mass market bank.
The transformation requires intense preparatory work to convert to a bank. First the capital and legal structure needs to be changed. The capital issue was completed with the IPO. The legal structure of converting Ujjivan to a holding company and setting up a banking subsidiary with the requisite capital is now in progress. After this is completed and along with a number of other requirements like bank board members, branch opening plan, independent certification of the IT infrastructure etc., we would be applying for the final license.
- Meanwhile the transformation work in the business front is continuing in full force, and had commenced before the in-principle license was issued. Ernst & Young was appointed as the consultants for the overall project. On the technology front, key additions to the current infrastructure is in progress. We are in the process of implementing the Finale core banking and treasury systems from Infosys; CRM solution from CRM-Next; mobility solutions from I-Exceed; comprehensive risk management system from SAS; upgrading the Human Resource module from RAMCO; Oracle Accounting System, hardware from Oracle, CISCO etc.; Wipro has been engaged as the System Integrator.
- Extensive work is in progress on the Human Resources side where key management positions at the leadership level has largely been filled and the second level recruitment is in progress. Competence mapping of existing staff for various positions in the SFB has also been undertaken. Training programs are proposed to be held during the six months prior to the launch. IT training has already commenced. Along with this we have started a ‘mindset change’ training for existing staff from a loan giving institution to that of an institution which will provide a full range of services including savings.
- We plan to consolidate our existing branches and convert them to full service SFB branches. We will open the required number of new Unbanked Rural Branches (URB) over the year as per the SFB guideline requirement. Considerable research and planning has gone into the location of the URBs. We see this as a new business opportunity. These branches will be designed to meet the requirements and aspirations of our target customers. The physical infrastructure of all these branches will require considerable investment and time. We understand that the RBI is planning to come up with a comprehensive policy on new branches later this year. We hope this will give us leeway to pace our branch conversion to ensure that we can do this in a feasible and viable manner.
- In order to provide the customers multiple channels/access points, we will supplement the branches with alternate delivery vehicles like ATMs, phone banking, banking correspondents and also internet banking. This is also being planned to be executed in a phased manner.
- On the product side, we have undertaken considerable research on the savings habits, likes and dislikes of the target market customers. We are designing the products and services accordingly. In addition we are working on remittances and third party insurance products which will be launched in a phased manner. We are also enhancing our loan products for the SME sector.