Ujjivan Small Finance Bank
Samit Ghosh is a veteran banker who has held key positions across Citibank, Standard Chartered and the HDFC Bank. After a long stint in commercial banking, Ghosh, 72, entered the microfinance business in 2004-05 by founding Ujjivan Financial Services, the holding company of Ujjivan Small Finance Bank.
Currently the Non-Executive Chairman of Ujjivan Financial Services, Ghosh says it was his passion to serve the unbanked poor that prompted him to take the plunge into micro-lending, which wasn't very popular a decade-and-a-half ago.
After 15 years at Ujjivan, Ghosh looks back at 46 years of his banking journey. In an exclusive interview with Moneycontrol, he also opened up about his deep disappointment with the outcome of a special resolution to appoint him as Managing Director and Chief Executive Officer (MD&CEO) of Ujjivan Financial Services, which was defeated by minority shareholders early this week. The special resolution received 70 percent of the valid votes in favour as against the required minimum of 75 percent.
Ghosh also spoke about the challenges faced by the microfinance institutions (MFI) industry and the path ahead for Ujjivan, among other issues.
Are you disappointed with the shareholders’ rejection of the special resolution?
For one day, I was quite upset. I didn’t want to take this job. The company said since the MD & CEO position has fallen vacant, why don’t you take up the additional charge, we will get someone else soon. So, I thought okay. But, since the minority shareholders didn't approve the proposal, the 75 percent cut off required for the special resolution wasn't met. Obviously, it hurts when something like this happens. After so many years in Ujjivan, I never had a setback like this. For one day I was disappointed.
But it shows minority shareholders are unhappy. Isn't it a worry?
After we became a bank, we (Ujjivan Financial Services which is the holding company of Ujjivan Small Finance Bank) took a back seat. We have a lot of common shareholders. This is a lesson for us that we should not have taken our eyes off the ball. We should have maintained relations with our investors. At the end of the day, being a holding company, we cannot directly intervene in the bank’s operations. But definitely, I will be actively in touch with the investors.
What is your vision for Ujjivan for, say, the next five years?
Our vision has always been to become a mass market bank, to serve the segment at the bottom of the pyramid and grow with them. Our objective is not to become another HDFC Bank or Axis Bank. That market is saturated. Our core strength is the micro loan business. We have to keep adding more products and services and digitalise, focusing on this customer segment.
At a broader level, what is the challenge for MFIs-turned-banks like Bandhan?
For any organization, there is core strength. Bandhan was the most successful MFI in the business. PSBs in East India have been disastrous and Bandhan has filled that gap there. At the end of the day that focus needs to remain. Competing with the likes of HDFC Bank will be foolish. Bandhan can bring down the microloans to say 50 per cent and move the other half to secured loans, but even there the focus should be servicing this segment. They should remain with the core strength-- MFI customers.
What is your learning from the Andhra Pradesh crisis, demonetization and now the COVID crisis?
At the time of the Andhra Pradesh crisis, (referring to the 2010 microfinance crisis that was triggered following a controversial state law) the MFI industry wasn’t big and there were no regulations. Much of the business was largely restricted to one state. It took a year for the industry to recover from the Andhra crisis. When demonetization hit us, it was across the country and it took 18 months for Ujjivan to recover from its impact. Now, we have seen the COVID impact for a year already and the COVID Second Wave is spreading across India. This is both a medical and an economic problem. It is a double whammy for us. It is one of the biggest crises to hit the sector.
But big banks have been posting good results
Yes. I cannot understand this. Every day I see banks posting good results. I don’t know if it is temporary or sustainable. Even banks will be impacted. But I think most of the impact will be evident after a long time. There will be question marks on the quality of loans. Right now, there are lower rates and people also need money, but the quality of these loans in the long-term need to be watched.
What will be the impact on MFIs?
There was some optimism among industry people during the First COVID wave. Nobody wants to present a gloomy picture. But now with Second Wave coming, this is a completely different story. When the AP crisis happened, MFIs were relatively small and concentrated and by the time demonetisation happened, this business grew across the country. Today, COVID is across the country. Today, if you have to solve the problem, state-by-state, we have to come with a different strategy.
Do you expect MFIs to shut down in this wave?
I think smaller MFIs will find it very difficult to survive. Getting through the Second Wave will be tough. After the first round, MFIs were able to mobilise collections on time. They have been showing good performance. Having a good collection team is important. RBI gave the banking industry, including MFIs, an opportunity to restructure loans. Unfortunately, I don’t think too many MFIs took advantage of it since it was not a simple exercise. You have to go and see customers and understand the problems case by case. In some cases they might need additional funding. But restructuring was a very good opportunity for MFIs. Now with the Second Wave, the RBI may have to again offer some kind of opportunity to both customers and institutions.
What you expect from the RBI this time?
Moratorium is only a temporary respite. The RBI needs to think about restructuring schemes and the industry must take it very seriously this time. In India, unlike US, the government cannot give cheques directly to entrepreneurs, but there should be some way to help them. Either loan restructuring or additional funding will help. It is a tough exercise. RBI should facilitate.
What will be the impact of the Assam MFI Bill on the industry?
It is slightly different from the AP situation. If you look at Assam, the bulk of funding comes from Bandhan Bank and MFIs. Ujjivan is also a small player. But Bandhan has a huge market share there. If Bandhan stops lending there, it will be bad not just for Bandhan, but also for the state of Assam. Sooner or later, the government has to realise that an amicable solution needs to emerge.
You are one of the founding members of Citibank’s India consumer business. How do you look at Citi exiting consumer business?
All of us were upset when this announcement took place. The point is over the years, Citi’s retail business has become marginal. If you look at the last 10-15 years, all the private banks have taken over the command of the market. I set up the NRI business for Citi in India. We got very good response. Citi built a very good client base among rich NRIs. At least that business will remain with them along with wealth management.
But India is a booming retail market. Is it a good decision for any banker to exit retail at this stage?
From that perspective, it is not wise. But they have decided globally that they are going to cash in across the world; it is their decision.
You have been a banker for 46 years. From banking to microfinance--how was the journey?
I have had a fairly successful banking career. I really felt the joy of working for Ujjivan because the decision to start this business came from not just the brain, but also from the heart. I finally found my calling by setting up Ujjivan. That has been a big satisfaction.
What do you think about the new banking license applicants?
If you look at new bank license applicants, not many names are attractive. Only one or two names are exciting. Also, there is a big debate whether big businesses should be allowed to set up banks. As Raghuram Rajan said, the future belongs to small institutions. More and more of the middle class will move up and there is a big gap in the banking services offered presently. To serve that population, you need to be a successful mass market bank.
But, the composition of the banking industry is changing --- What is the future for MFIs?
If you see the trend in the last ten years, bigger MFIs have become banks or they have been acquired by banks. Slowly, pure MFIs are going to narrow down very much. In future, MFIs will get absorbed by banks or convert themselves to banks.
Why did Ujjivan become a small finance bank (SFB)?
As non-banking financial company (NBFC), we were very profitable. But NBFCs have a higher risk. We became a bank because our mission was financial inclusion, not just on loans but also to give savings products. So, if your ambition is just to remain and give loans, MFI model is good. But the future is not very bright for them as slowly banks will take over.
What about Fintech companies?
How profitable are Fintechs, is an issue. If they are in the lending business, they will be the worst affected in a crisis and a lot of them will have to be merged or sell their business to banks. A lot of Fintech guys have good software to evaluate loan applicants, but loans have to be collected from the ground as well.