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Financial Year 2017-18 has been the first full year of operations of our wholly owned subsidiary - Ujjivan Small Finance Bank (SFB). Transformational journey to a Small Finance Bank threw up multifaceted challenges. The Bank had to convert the existing NBFC outlets, numbering over 450 into full-fledged bank branches under a phased programme and deploy modernized IT infrastructure. Traditional brick and mortar branches apart, access to alternative banking channels like ATMs, phone and mobile technology aided services had to be provided to customers. New employees had to be inducted and were to be intensively trained to build competencies in banking operations. Full-fledged Treasury and Risk and Compliance units had to be set up. MSE and Housing verticals had to be strengthened to provide the much needed business thrust. Deposit business had to be built from scratch and funding cost had to be reduced. The Bank leadership team and the rank and file rose up to the manifold challenges admirably and had rolled out 187 branches, with plan to take the number to 475 by the end of the year. Deposit build up happened quickly, with a base of over Rs 3000 crore, albeit wholesale, and funding cost dropped by 140 bps - from 10.4% to 9%. Micro and Small Enterprises business and Housing saw a growth momentum at 7.2% of the overall portfolio by year end as against 2.4% in the previous year.
The adverse impact of demonetisation however lingered through most part of the last financial year. We witnessed considerable damage to the credit discipline and repayment behaviour of borrowers. The defaults were pronounced in certain geographies. Defying our expectations, a significant portion of the impaired assets turned hard core NPAs. We maintained a conservative stance and took a hit of Rs.177 crore by way of loan write off during FY 2017-18 and contained total credit costs at Rs 311 crore, constituting 4% of the portfolio. The Bank strengthened its recovery organization by setting up specialised collection team for recovery from hard core NPAs and concurrently revisited its growth strategies in the affected markets. It is gratifying that the rank and file, particularly of the microfinance business, through strong grit and determination put the business back on track; monthly repayment has since improved from 89.5% to 97.3%. The bank was able to close the year in black. The net non-performing assets stood at 0.7% as of March 2018.
Mr Samit Ghosh, Managing Director of the Bank, has lucidly articulated in his letter to you the challenges faced during the financial year and how they were met. He has also detailed the strategic initiatives taken and proposed to put the bank back on a sustainable growth phase.
Moving forward, the bank plans to leverage fully on the branch network and the robust technology infrastructure it has set up and build the growth momentum in all its businesses segments. Selective build-up of Microfinance business in chosen geographies, while maintaining steady growth overall, non-linear growth in MSE and Housing vertical, foray into rural banking, introduction of new loan products, opening up new business lines such as personal lending, two wheeler financing and institutional lending, ramp up of deposit mobilisation with focus on retail, are some of the key strategic priorities planned.
Ujjivan Financial Services Limited, the HOLCO, at the consolidated level posted a total income of Rs.1582 crores- an increase of 13.2% over the previous year and a net profit after tax of Rs 7.3 crore. The Board has recommended a dividend of 5%, subject to the approval of shareholders.
Post formation and business transfer to Ujjivan Small Finance Bank, your company had applied to the Reserve Bank of India for registering the Company “Ujjivan Financial Services Limited” (HOLCO) as an NBFC-Core Investment Company. The RBI vide its letter dated October 10, 2017 has approved the conversion of the Company into a Systemically Important Core Investment - Non-Deposit taking - Non-Banking Financial Company i.e. from NBFC-ND-SI-MFI to NBFC-ND-SI-CIC - and has issued a new Certificate of Registration dated October 10, 2017. In compliance with the RBI direction, the Company has surrendered the NBFC-ND-SI- MFI Certificate. As a holding Company, we exercise oversight on the overall functioning of the SFB and provide it funding support when needed, subject to the regulatory framework.
Before closing, I regret to mention that Ms. Sudha Suresh, the Managing Director & CEO of the Company has resigned for personal reasons, to take effect from 30th June 2018. She has been associated with the company for nearly a decade and her contribution to the company was significant, particularly in successful listing of the Company on the stock exchanges and transitioning the company to a Bank. The Board accepted her resignation with regret and placed on record its appreciation of her valuable contribution.
The Board has proposed to appoint Mr Ittira Davis as the Managing Director and CEO effective July 1 2018 subject to RBI approval. Mr. Ittira Davis is currently the Chief Operating Officer of the Bank. He is a career banker with over 36 years of corporate and investment banking experience. He has previously worked with Citi Bank in India and the Arab Bank Group in the Middle East and Europe. I seek earnestly your support to him.
We thank you for your excellent understanding and support and look forward to the same in greater measure in the years ahead.
With Best Wishes,