Ujjivan Fin to focus more on micro SME, affordable housing: CEO

Ujjivan Financial Services is targeting to change composition of loans going ahead. Speaking to CNBC-TV18, Samit Ghosh MD and CEO of the financial group said it wants to serve the un-served and underserved and to that extent the company is moving from the group lending business which is the predominant business today, to work more on micro and small SME finance and affordable housing.However, the company may not grow at an accelerated pace, Ghosh said.Currently, 87 percent of the portfolio is group lending. "Over five years, portfolios will be equally divided across the two segments," he added."The composition of our growth in the next five years will change from pure group finance to individual lending which we do for micro SME and for the affordable housing side." Cost to income may go up above 60 percent in the next two years due to investments in tech and infrastructure advances, he said, adding, this would drop later to the current levels.Funding cost of the financial institution will go down after conversion to a small bank. Further, as retail franchisee gets built, Ujjivan will see further ease in the cost of funds, Ghosh said. Below is the verbatim transcript of Samit Ghosh’s interview to Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Latha: I heard a bit of your chat with Tamil at the conference, is that right that you want to stick with microfinance, you don’t want to really diversify too much by way of your asset franchise? A: It is not that we are just sticking to microfinance, we want to serve the un-served and underserved and to that extent we are moving from the group lending business which is the predominant business today, to more on micro and small SME finance and affordable housing. We think that is going to provide us the growth in the next five years. So, to that extent, our asset book is going to change. Sonia: Microfinance has been one of your strongest segments. Even in the quarter gone by, you saw a whopping 63 percent growth. So, when you say you are going to improve the growth run rate what do you mean, can you better this 63 percent portfolio growth that you are seeing currently?A: While we go through the transition, we don’t want to grow at a very accelerated pace. However, the composition of our growth in the next five years will change from pure group finance to the individual lending which we do for micro SME and for the affordable housing side. Latha: What is the breakup now, how much are you lending to the self-help group (SHGs)?A: Today 87 percent of our portfolio is group lending. Only 13 percent is in this side. We expect over five years that the portfolio will almost equally be divided between these two types of businesses. Latha: As you go towards individual lending and SME and affordable housing, will that start to tell on your returns, what will your yields be because SHG you make a much bigger yield, don’t you? A: We do make a much higher yield in the sense but the cost structure is also high. The ticket sizes of loans for the micro and small business and affordable housing is going to be larger. So, the operating cost from that point of view will drop even though the interest revenue will be lower than what is there for group finance. Latha: Can you give us some numbers, what is the margin you are working with now? When you become 50-50, what will your margin be, what is the cost to income now, I think the cost to income now is 45 percent, what will it be when you become 50-50?A: It is around 50 percent or something, cost to income but the cost to income in the next two years because we are investing very heavily in the transformation process in terms of technology, infrastructure for branches, people, etc, it will go up. It will go up to 60 percent plus level or something and then we expect it to drop down maybe slightly around current levels.