After a loss in the first quarter of FY18, Ujjivan Financial Services, promoter of Ujjivan Small Finance Bank, expects the impact of demonetisation to completely wane away in the next two quarters.
The Bengaluru-based cash-heavy transactions business, micro finance institution reported a net loss of Rs 75 crore in the first quarter ended June 2017.
Samit Ghosh, MD and CEO, Ujjivan Small Finance Bank said, "We have taken significant provision in this quarter based on the collection trends in the quarter. We have ensured 100% provision of the hard core NPAs of the November, December & January loan portfolio amounting to Rs 150 crore (including Rs 43 crore of an additional provision to cover hard core NPAs of Nov-Jan period)… Growth will kick-in from this quarter for the overall business."
The micro-lender turned small finance bank was hugely impacted by the invalidation of 500 and 1,000 rupee bank notes, announced on November 8, 2016, that delayed the repayments by its borrowers substantially.
This led to a spike in non-performing assets (NPAs) with gross NPA ratio as a percentage of total loans jumping to 6.16 percent from 0.28 percent in the previous quarter, while its net NPAs increased significantly to 2.30 percent from 0.03 percent.
"This was because of the sticky Nov-Jan over dues rolling over to higher buckets…Customers are paying with a lag and hence, NPAs are higher due to delay in collection trends with the 12-month repayments getting extended to 15 months. But they are paying and the risk in our portfolio isn’t there," said Sudha Suresh, MD & CEO, Ujjivan Financial Services.
Suresh said the bank will have to further take four percent of our total loan portfolio as provisions for the entire year.
The gross loan book grew to 10 percent year-on-year and just 1.25 percent to Rs 6,459 crore, quarter-on-quarter, with an increased disbursement of Rs 1,700 crore, up by 21 percent over last quarter adding 1.76 lakh new customers.
"We have taken the entire provisioning this quarter, which has impacted our credit costs (78 percent) or cost of loans and profitability. We expect credit costs to come down to 70 percent by year end," Suresh said.
The bank is also hoping to get the scheduled bank status by September from the Ministry of Urban Development after the Reserve Bank of India’s clearance. This will help the bank build its deposit base as the likes of mutual funds and insurance companies will be able to subscribe to their certificate of deposits.
Suresh added that the residual impact of demonetisation is only in select affected branches and it would be cautious there.
MFIs, which have significant exposure in states of Maharashtra, Madhya Pradesh, Uttar Pradesh, Uttarakhand and Karnataka, are expected to witness a 5-10 percent increase in cost of loans over FY18-FY19 on the accounts that were due for payments in December 2016, says India Ratings and Research.
However, Suresh optimistically said, "We expect the loan growth to be at 18-20 percent for the full year. We have seen progress in July and are hoping we would be able to wipe out the credit losses and come back to profit in the next 2 quarters."
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