Customers willing to pay but with a time lag: Ujjivan Financial

In the backdrop of demonetisation, Ujjivan Financial posted a steady set of third quarter earnings where its net profit fell 39.8 percent to Rs 44 crore quarter-on-quarter (QoQ) and its net interest income stood at Rs 229 crore, up 2.9 percent (QoQ).India's booming non-banking financial companies (NBFCs) sector hit a speed bump due to the government's surprise cash ban and were widely expected by the Street to post subdued earnings for the third quarter of this fiscal.

Speaking to CNBC-TV18, Sudha Suresh, CFO of Ujjivan said that monthly collections have picked up strongly in January and there has been an encouraging trend in terms of repayment as customers are willing to repay but with a time lag.

She further said that the company have started new customer acquisitions in certain regions and sees provision write-backs in the next 3-6 months. Below is the verbatim transcript of Sudha Suresh's interview to Reema Tendulkar, Prashant Nair & Abhishek Kothari. Prashant: Have you taken a provision this quarter, if yes, how much and why? A: The Reserve Bank of India (RBI) has indicated that we could look at the assets which are overdue in the demonetisation period of November and December. Ideally we could treat this as standard assets. However, Ujjivan has always had a very conservative provisioning policy and that has also been recognised as one of the best practices and Ujjivan looked at affected portfolio and reviewed it both in November and December and January and we have taken conscious call in terms of putting up an extra provision for these assets and not looking at them, taking the benefit of RBI's guidelines which said that we could indicate this as standard assets specifically for the overdue for November and December. Prashant: How much have you provided an also if you can tell whether your collections are weekly or monthly and if you can clarify whether there is a possibility that this provision can be return back and how quickly? A: We would like to indicate that our collections are on monthly basis and during demonetisation period a lot of support was given to our customers who faced a lot of hardships in terms of getting the new currency. So on one hand we ensured that we give some time to the customers and the repayments have started flowing in and it has been very encouraging trend that we have seen across post demonetisation in November. We have encouraging trends both in December and January particularly in January we are seeing some encouraging trends in terms of repayment and collection efficiency. Looking at write back in terms of provisions assuming that they are on an access mode, we would definitely take stock of it in the next three-six months and see how the collection efficiency is there in terms of overdue and in case we have a robust provisioning, we could always look at write back. Abhishek: This provision is entirely on your gross non-performing asset (NPA) or the NPA formation. There has been no provision with respect to the state interference that was happening in Uttar Pradesh and Maharashtra? A: We have taken a call on affected portfolio and it is across because Ujjivan is pan India presence with all 24 states. So wherever there is an affected portfolio, we have seen how the trends are and what are the behaviour and then we have taken a conscious call on the affected portfolio in terms of overdue. Reema: Could you give us a breakup on a month-by-month basis on disbursements as well as collection efficiencies for October-November-December and January to get a sense of what recoveries looking like post demonetisation? A: On an average we were close to disbursing around Rs 600 crore per month. In October we maintained the same run rate but in November, post demonetisation. We had to look at how to spread this information to our customers and monitor in terms of collecting only in the new currency and at this juncture we thought it is prudent not to acquire new customers. So to that extent we had some amount of disbursements which came down, in fact most of the microfinance institutions (MFIs) turned to small finance banks (SFB) who were not able to disburse; Ujjivan was able to disburse almost Rs 553 crore in the month of November. So, whatever collections came to us and which was in the new legal tender, we ensured that our valued customers with a good track record, with repayment record and who had requested for sanctions of new loans - those were duly sanctioned and they were able to avail. Therefore, in the month of November we had about Rs 553 crore of disbursement. In the month of December we had about Rs 415 crore of disbursement. So we took a call in terms of new customer acquisition where we did not acquire or do any disbursement but however, to our existing customers with a good track record of repayment, we continued our disbursements. Abhishek: Largely a customer base is used to cash transaction. How have you seen the movement from being cash oriented to cashless and on disbursement you mentioned that per month run rate on an average basis was Rs 600 crore. So by when do you expect this Rs 600 crore to come back? A: We are monitoring the situation across all the states and wherever there are encouraging trends and where the repayment rates have come back to normal, we have started on the new customer acquisition also. However, it will take some time to see the position back to normalcy across our entire portfolio and the new customer acquisition will follow that pattern. Prashant: What is the number so far for January? A: We have completed around Rs 200 crore plus but we need to see the second half of January. Prashant: It should be little over Rs 400 crore similar to December? A: Definitely yes, but we do not know the exact number because it depends on the disbursements which happen in the next ten days. Prashant: What is the total book now? A: In terms of gross loan portfolio, we are at about Rs 6,588 crore. We have a securitised portfolio which is around Rs 542 crore. So our net OSP stands at about Rs 6,046 crore. Reema: Could you tell us about asset quality and the trends. We have seen an increase in the gross NPAs as well as net NPAs. How is Q4 going to shape up for you? A: We have seen an encouraging trend in terms of repayment. If you look at the position post demonetisation, where the customers, some of them were not able to pay during November, they have paid up in December and customers who were not able to pay in December, are paying their December instalment in January. So from that angle the customer is willing to repay albeit with a time lag. I think that is fair considering that this has been an extraordinary situation that we are getting the repayments albeit with a time lag but we will have to see in terms of what finally crystallises as NPA over a period of next four-six months though the results are encouraging now, we will wait and watch the trend and we hope that slowly things could turn back to normalcy and then probably we could take a final view on what could be the real NPAs. Prashant: Going on that point in terms of the provisions that you have made, the October-December period, can you tell us what has been the collection in that portfolio so far in January? A: In November we had collected almost 90 percent, so there was roughly about 10 percent overdue as of November end but the collection of the November overdue over a period of December as well as January, we are closer to about 95-96 percent currently. So that is why we are saying that there is an encouraging trend in terms of the repayment. Similarly for December repayments which were due, we are seeing that it is around 91-92 percent currently. Abhishek: What is your disbursement and loan growth guidance for FY17 as a whole and FY18? A: That is a tall order because we are in extraordinary circumstances. We will have to see. Our disbursements will be calibrated because we will have to see how we shape up on new customer acquisition as well as spruce up our disbursement in this quarter and based on this trend, which comes, we will be able to forecast what could be our FY17-18 disbursement. I think it is a little early to respond to that. Prashant: On political front - we are on the cusp of elections in two large states. Have you seen that impact coming through? A: We are all aware of some of the impact on political influence in some of the states and Microfinance Institutions Network (MFIN) did a yeomen's job there because they communicated throughout with the states at the ministry level, at the RBI level and across all other stakeholders and ensured that the true message went across the customers which indicated that we are here to support you and it is important for you to understand that there can be a time lag maybe because of practical difficulties but it is in no way a repayment holiday. So a lot of messaging and good communication across all our branches to customers and I am speaking not only by Ujjivan but also through other MFIs through the microfinance associations across the states and MFIN, they have done a yeomen\\'s job in giving the true picture and reaching it out to the customers.