UJJIVANNSEQ3 FY2019January 23, 2019 Ujjivan Financial Services Limited
9,455words
186turns
20analyst exchanges
9executives
Management on call
Vikash Mundhra
RESEARCH ANALYST - AXIS CAPITAL LIMITED
Ittira Davis
MANAGING DIRECTOR & CHIEF
Deepak Khetan
CHIEF FINANCIAL OFFICER &
Samit Ghosh
MANAGING DIRECTOR & CHIEF
Sanjay Kao
CHIEF BUSINESS OFFICER - UJJIVAN SMALL FINANCE BANK
Upma Goel
CHIEF FINANCIAL OFFICER - UJJIVAN SMALL FINANCE BANK
Murli Manohar
NATIONAL MANAGER FOR
Rajat Kumar Singh
BUSINESS HEAD FOR MICRO
Sneh Thakur
HEAD OF CREDIT & COLLECTIONS
Key numbers — 40 extracted
Rs.2885 Crore
as well as in the asset side. This is in line with our business plan. Our disbursements were to Rs.2885 Crores up 21% quarter-on-quarter. This led to gross loan book growth of 12% quarter- on-quarter to Rs.93
21%
e asset side. This is in line with our business plan. Our disbursements were to Rs.2885 Crores up 21% quarter-on-quarter. This led to gross loan book growth of 12% quarter- on-quarter to Rs.9349 Crore
12%
ursements were to Rs.2885 Crores up 21% quarter-on-quarter. This led to gross loan book growth of 12% quarter- on-quarter to Rs.9349 Crores. Micro Banking vertical has shown good traction with disburs
Rs.9349 Crore
Crores up 21% quarter-on-quarter. This led to gross loan book growth of 12% quarter- on-quarter to Rs.9349 Crores. Micro Banking vertical has shown good traction with disbursement growth of 17% versus the previ
17%
ter to Rs.9349 Crores. Micro Banking vertical has shown good traction with disbursement growth of 17% versus the previous quarter. This is in line with what we have been mentioning over the last two
100 Crore
ng, rural banking has all been ramping up rapidly. Financial institutions group now has a book of 100 Crores with 75 Crores disbursed in this quarter. We expect this to ramp up in the next quarter, the cur
75 Crore
g has all been ramping up rapidly. Financial institutions group now has a book of 100 Crores with 75 Crores disbursed in this quarter. We expect this to ramp up in the next quarter, the current quarter. T
25%
he quarter taking our branch network to 464 and are fully compliant with the RBI requirement of 25% banking outlets in unbanked rural centers. We have 10 more branches to be opened in the fourth qu
29%
ur liquidity position is comfortable as we have brought down the dependence in the CD market from 29% at the beginning of the year to around 10% and high cost term borrowings inherited from the NBFC
10%
have brought down the dependence in the CD market from 29% at the beginning of the year to around 10% and high cost term borrowings inherited from the NBFC period is now down from 16% to 2% as a perc
16%
year to around 10% and high cost term borrowings inherited from the NBFC period is now down from 16% to 2% as a percentage of the total borrowing. We replaced the CD borrowing by lon
2%
o around 10% and high cost term borrowings inherited from the NBFC period is now down from 16% to 2% as a percentage of the total borrowing. We replaced the CD borrowing by long-term
Guidance — 20 items
“We expect this to ramp up in the next quarter, the current quarter.”
“Rural business, which was launched this year, has shown an impressive initial growth in assets and liabilities with network of 117 rural branches we expect this business to grow at a rapid scale.”
“This year we aim to convert around half of our micro banking borrowers as banking customers.”
“For the year we plan to cover 65% to 70% of the total assets by deposits of which retail would be about one third.”
“We expect this to start declining with the completion of the big spurt of our branch conversion and scaling up of our businesses.”
“Details of the final roadmap will be provided after receiving these approvals.”
“We also want to raise $50 million worth of Tier-2 capital in this quarter, so liquidity is not an issue with us to the extent that as I mentioned we are out supporting a lot of the good NBFC by providing the funding we have done back in the last quarter and we intend to continue do in the next two quarters.”
“So we are approaching these all required regulatory approvals, so we will be approaching both RBI, SEBI and NCLT for these approvals and once we have these approvals we can come back to you, but the way stands RBI requires us to list, but there are various options the various ways to list the bank, those are what we are excluding.”
“Sir, my question is related to cost to income ratio, I mean listing we had some vision, we have some plan, we were talking about reaching near 50%, so where we stand there and how you see this changing over the next three years, why it is so late and by what way we will be changing to those type of ratio, this cost to income ratio of 77% if you compare this with Bandhan bank it is 33%, so where we stand and what is your thought process?”
“And for that the major driver will be growth?”
Risks & concerns — 4 flagged
Very steady performance given the context of the quarter, first question on the balance sheet growth, which is quite strong and secondly given the liquidity scenario in the sector do you see some pressure on the disbursement in the coming quarters and secondly MFI segment some of the states have announced a loan waiver, so do you see any impact on the high delinquency in those states?
— Manish Ostwal
Overall in terms of impact of loan waiver on our portfolio quality impact has been minimal so far.
— Rajat Kumar Singh
In Karnataka because it has gone through a little bit of challenge in previous years, in Bengaluru and urban area we are a bit more careful and moving towards semi-urban and rural areas.
— Rajat Kumar Singh
In the CASA front I was asking, so let us say when majority of the products of the banks once reaching after the CASA ratio let us say 25% the next incremental becomes a bit difficult, so any type or anything where you will reach this target or just comments on that, how you are planning to increase our CASA ratio?
— Agam Shah
Q&A — 20 exchanges
Q
Thank you for the opportunity. Very steady performance given the context of the quarter, first question on the balance sheet growth, which is quite strong and secondly given the liquidity scenario in the sector do you see some pressure on the disbursement in the coming quarters and secondly MFI segment some of the states have announced a loan waiver, so do you see any impact on the high delinquency in those states?
Samit Ghosh
From the liquidity point of view we have no issues at all, we have sufficient funding and we have been able to replace as I mentioned in my introduction a lot of the short-term funding largely through refinance facilities and growth of our deposit business a lot of which is done deposit. We also want to raise $50 million worth of Tier-2 capital in this quarter, so liquidity is not an issue with us to the extent that as I mentioned we are out supporting a lot of the good NBFC by providing the funding we have done back in the last quarter and we intend to continue do in the next two quarters. As
Q
Thanks for the opportunity Sir and congratulations on the great set of numbers. I was specifically looking at the slide 23 of your presentation and what do you mean by deposit customers and new to bank deposit customers, if you could help me understand how this transition has happened adding a 5 lakh customer base quarter-on-quarter or even a 0.6 lakh customers new to bank deposits, so what is the strategy being used there and also what is the average deposit ticket size that we are looking at?
Samit Ghosh
So, could you repeat, which slide are you talking about? Slide 23 of your presentation, I think this is the first time you have introduced this, your customer base growth. Right. This is an interesting slide, I am pretty impressed with the numbers that we see, just trying to understand how these numbers have shaped up and what is the average deposit size that we talk about in this? You see our deposit customer base has increased almost by 5 lakhs, bulk of this increase have come from micro banking segment and in the third line we have mentioned what is the customer base addition in branch bank
Q
Thank you very much. Sir, my question is related to cost to income ratio, I mean listing we had some vision, we have some plan, we were talking about reaching near 50%, so where we stand there and how you see this changing over the next three years, why it is so late and by what way we will be changing to those type of ratio, this cost to income ratio of 77% if you compare this with Bandhan bank it is 33%, so where we stand and what is your thought process?
Upma Goel
Cost to income ratio, which is currently at 77% as we all know we are in the process of converting asset branches into full fledged banking unit, so this year we are expecting the cost to income ratio to remain in the range of 75%, but with our growth we are expecting our cost to income ratio to reach to the level of 50% to 55% in the next three to four years. And for that the major driver will be growth? Growth as well as the cost control measures, which we have been already institutionalized from this quarter. Largely it will be from scaling up the business, you are right. Sir, last question
Q
That relates to mainly MSE business because in the MSE business we are moving from unsecured business to secured portfolio and the secured loans obviously have a lower interest rate and the loan ticket size is larger. That is only related to MSE business and not for the other businesses.
Sunil Kothari
Does it have any reflection on our NIMs going forward on a blended basis? On a blended basis, currently our portfolio is 82% secured and 18% unsecured progressively the portfolio will come close to about 90% secured, so the current NIMs will deteriorate by about 100 basis points, but that will be more than made up by the reduction in the loss numbers that we will have over time. My second question is with respect to the number of retail customers that we have taken, given that we have such small ticket customers, what would be the cost of servicing them and what can be the potential pay off go
Q
Just one question, could you speak about the discipline in the group center meetings and any trends over there, I think the last time I spoke to you, so any comments about that how that has changed?
Samit Ghosh
So, you are asking about center meeting discipline? Yes. So, in some specific states especially in Maharashtra we were seeing the trend, very structured way we have started working on bringing that center meeting discipline, a lot of policy changes have also been implemented, so we are seeing a positive trend and it has also helped us in improving our on time repayment rate, so we are seeing positive traction already. Rajat, you just mentioned some of these polices like what else are you doing? So, for example customer is not provided loan after delaying three or four payments we have tightene
Q
Good evening and congratulations for the quarter. I have three questions, one is if I look at the numbers you have reported your yields have moved up by 100 basis points Y-o-Y, your costs have come down by 80 basis points Y-o-Y, but the NIM that you have reported is flat, so just help me reconcile this, the second question is with respect your branch openings, so we know what the conversion plans are that is fine, but apart from the conversion what is your branch addition plan and hiring plan for the next year or a couple of years if you can share that and the third thing is in MSE if I look a
Rajat Kumar Singh
Let me take your first question , which is on the branch expansion. We have plans to expand our branch first of all we will convert we have 48 asset centers, which are still to be converted, which we will convert within the first half of next year and we have plans to grow branches further for which we are doing our surveys, which we do our internal survey to determine which branches those would be, but it is not going to be in the same measure as it has been in this year. But any number that you can share or you have in mind? Not till we completed our survey, once we completed our survey we w
Q
My question is related to branch banking, if you can just highlight what are the top two things now for us at our branches because now I think most of the rollout is over, most of the operating costs have been taken, so what would be the top two things that we would focus on at the branches for say next four or five quarters?
Rajat Kumar Singh
So, our primary focus in the branch banking area is to increase CASA and strategically we are going through a segment & solution based strategy to do that and that is what we will continue to do as we continue to embellish our product, so we will go to segments provide a holistic solution to that segment while also embellishing our CASA product and the FDR strategy will continue to have higher than what competition is offering, the private banks that they offer to be able to gain foothold in the segment. From the new additions that we have done is on the current account product we have added a
Q
Sir, most of the questions have been answered, just a few data keeping question, one what is the breakdown of interest income between advances and investment income and other interest income, second is the breakdown between current account and saving account and the third is the breakdown of the free income between processing fee, PSLC and any other free income and treasury gain?
Deepak
Dhaval you can take down the numbers for Q3 FY2019 processing fees is 30 Crores, 0 PSLC, interest on investment is 26 Crores, securitization income is 3.6 Crores, bad debt recovery is 5.3 Crores, fee income is 5.1 Crores and miscellaneous income is 5.7 Crores. How much was bad debt recovery? : 5.3 Crores. And after that the two numbers were? : Fee income is 5.1 Crores and miscellaneous is 5.7. Got it and breakdown between current account and saving account? Currently our card deposit is close to 50 Crores and saving account deposit is above 510 Crores. Perfect. Thank you so much.
Q
Just wanted to understand firstly on your MFI business, so around 30%, 40% of our business in the top three states that we operate in, so just wanted to understand how are these three states operating because not from an MFI, from a state perspective had gone through ups and downs like Karnataka has gone through the waiver, which is 13% of our business, so how are these three states West Bengal, Tamil Nadu and Karnataka are behaving from a customer perspective and from a business perspective?
Rajat Kumar Singh
Right now all three of these states are quite stable, we have good amount of growth coming from Tamil Nadu followed by West Bengal and then Karnataka. In Karnataka because it has gone through a little bit of challenge in previous years, in Bengaluru and urban area we are a bit more careful and moving towards semi-urban and rural areas. Our portfolio in rest of the Karnataka is doing pretty well. In Tamil Nadu we do not have any issue, our recent origination of last 15 to 18 months are also very, very stable, industry wise also we are not seeing any challenges at this moment, and even in West B
Q
On operating expense, how are we looking at growth on the current base for next year will it be the inflationary 10%, 15% growth or next year can be a higher growth on this quarterly run rate of 250 Crores of opex?
Sneh Thakur
So next year growth from the opex will be directly linked with our branches, which we will be opening it up, so as we say over a period of time we will look into the cost-to-income ratio of 50% to 55%, but the opex will be in line with the expansion, which we are planning for the next year. So any ballpark number in terms of growth if we look at this quarterly run rate broadly the full year opex will be around 1000 Crores run rate, so any ballpark growth that one should expect? So we are in the process of finalizing our branch expansions for the next year. We will come back with the numbers in
Q
One question is on this recent RBI circular allowing restructuring for MSME loans, have you done any analysis on how much of your portfolio would be eligible for that?
Ittira Davis
Right now, we are in process of putting in place a mechanism to do this though we do not have any such loan identified, which requires restructuring at the moment under MSME. And secondly your individual loans how much of it I believe most of it is sourced from your existing group loan customers. Is that correct? Yes. Thank you.
Q
With respect to the PSLC what kind of an excess PSLC would we be carrying at the beginning of the next year any guidance on that and second given the fact that MFI portfolio currently is behaving well, do we plan to have a policy wherein we will start to build some floating provision on that and thirdly there are some few data keeping questions. If you would share the average cost of institutional and retail FDs as well as the percentage of on group loan disbursements above say 1 lakh at the time of disbursements and thirdly what is the average ticket size in secured MSE portfolio?
Ittira Davis
I will take the first question, which is about the PSLC. So PSLCs will be definitely a source of income in the coming year also, but we will be able to estimate the amount during the budgeting process and we will give you those numbers after Q4, so that is about PSLC. Now please repeat your other questions. On building the floating provisions do we have any thought on creating policy on that for the group loans? So as far as the micro banking book is concerned we presently maintain a 0.5% provisioning on the standard asset book and we plan to review the norms in due course of time as far as th
Q
Yes and particularly in terms of the deposit franchise when we look at it the rollout, which has happened maybe the quarterly addition of almost like 5 lakh odd Crores, so where do we see ourselves, is it just the start or maybe from the existing branches this is the run rate, which would have continued per quarter or maybe we could see a much better traction going forward?
Sanjay Kao
Kunal, as the branches gain vintage their traction has been growing and that is what we have seen and we have classified branches into different categories and for each category we have a trajectory for every vintage and based on that we will continue to grow our numbers as we move into the following quarters. And any guidance for FY2020, maybe FY2019 you had given, but that is just quarter away, so when we look at it in terms of FY2020 how should we see the overall growth as well as maybe ROA, ROE and cost-to-income? For the long term we have already given a guidance that we will continue to
Q
Just one question. Can I get a breakdown of the MFI book in terms of urban, semi-urban and rural if that is possible?
Rajat Kumar Singh
It is pretty much equally distributed among urban, semi-urban and rural at this moment. And do we do significant business in any other lines, in the rural areas or not yet? We have rural branches where we have begun doing loans and asset and deposits, so we have created agri products that we sell through the rural branches and this will expand as we go as the rural branches grow as well. Alright. Thank you.
Q
Sir, this is regarding your listing of Small Finance Bank. Any thought process on any kind of structure that you have in mind in terms of like how much percentage we would be holding as a holding company Ujjivan and any kind of restructuring or any thought process on that would be helpful?
Samit Ghosh
We are working on two or three alternatives and we are going to discuss this with RBI and SEBI and then we can get back to you once we agree on the roadmap based on their approval, so right now we cannot really give you any kind of definite response to this. No problem sir. Thank you very much.
Q
And just one question that on the liquidity position and ALM. Just wanted though you have started your change in the mix towards the non-MFI, but if you look at the higher tenure more than one year your ALM gap, which is there, so just needed a colour that how you would balance in terms of the deposit growth and the advanced growth and the mix that will be taking place?
Sneh Thakur
On the liquidity side as reflected in our ALM, our long-term funding is more than covering our long-term assets as we speak and going forward as we are building it our term deposit the ratio will further go up, so on the ALM side we are very comfortable and the way we are building it up our non-MFI book we will be able to cover up our sufficient gap on to the assets and liabilities mismatch by way of the long-term funding from term deposit as well as from refinancing. But what the mix would be coming in, for an example right now more than one year if we look at the one year gap then the percen
Q
Just one question. This is a question to Rajat or even Samit, if anyone wants to take it, just wanted to understand that there is a general preference from most MFIs today to increase the average ticket size. More data points that come from Credit Information Bureau suggests that the average ticket size is increasing at a much, much faster pace across the board some colour as to why this is happening on the ground and one data keeping question if you earn more than 50% of the subsidiary whenever it is listed what is the DDT currently applicable on it?
Sneh Thakur
I just covered DDT remains at 20.56% that is being applicable. Even if you want more than 50%? Yes. Okay. Mahesh average ticket sizes are going up largely because most of the banks and SFBs have made some changes to their credit policy and allow the maximum exposure to go up to 1 lakh. As earlier in MFIN it was restricted at 60000 and 60000 was a norm, which was almost 5, 6 years old, so it got reviewed and most of the SFBs today have moved up to 1 lakh and giving loans to customers where ticket sizes are going up. If you look at Ujjivan’s disbursement, overall disbursement in micro-banking ha
Q
A small clarification on a couple of comments you mentioned. You mentioned our farm loan waiver impact has been low because we are more urban focused, but you also mentioned our MFI portfolio breakup between urban and semi-urban and rural are pretty even equally?
Rajat Kumar Singh
I was talking about MP in particular when I said that there our exposure is largely in urban and semi-urban areas. In Madhya Pradesh where we are seeing problems related to farm loan waiver in one of the branches, one of the districts there we do not have any major portfolio in rural area I mean significant, but if you look at PAN India, yes, in eastern part of country and some part of north we have portfolio in rural area as well, but in those areas there is no problem related to farm loan waiver. Thank you.
Q
Just one thing on the overall cost ratio, when we were MFI company our cost ratio used to be around 6% to 6.5%, cost-to-asset I am referring to, do you think that eventually in the next two, three years when you mentioned that 50% to 55% cost-to-income ratio you are essentially referring it to around 6.5% cost to assets. If you could comment on cost to assets how do you see that is tracking over the next two, three years that will be useful?
Sneh Thakur
So as we mentioned in the next two to three years we are expecting 50% to 55% as cost-to- income ratio, which translates into 6% to 7% of the total assets. So 6.5% in the next three years is something one can expect from the business? Yes. Thank you.
Q
Quickly sir, just a sense on your sustainable credit cost as you are progressing towards the secured portfolio considering the larger ticket size, one and two how is our SA per customer is shaping up what it is now and what is the target there?
Rajat Kumar Singh
Gaurav, can you repeat the second question? Yes, the savings account per customer what was it earlier what is it now and what is our target there, how do we see it shaping up in the future for the next two, three years? So on the savings account last quarter if you look at the averages it is 6400 and the average account holding now is close to 7800 odd, 7700, and we expect that to progress the same way and in fact a little faster. If I look at the active accounts, our active account balances are close to about 11000 and as the accounts become more and more active, again as the accounts become
Opening remarks
Vikash Mundhra
Thank you, Ali. Good evening, everybody, and welcome to the Q3 FY2019 earnings call of Ujjivan Financial Services. Representing Ujjivan Financial Services, we have with us Mr. Ittira Davis, MD & CEO; and Mr. Deepak Khetan, CFO & IR. From Ujjivan Small Finance Bank, we have us Mr. Samit Ghosh, MD and CEO; Mr. Sanjay Kao, the Chief Business Officer; Ms. Upma Goel, the Chief Financial Officer; Rajat Singh, who is the Business Head for Micro Banking and Personal Loans; Mr. Murli Manohar, who is the National Manager for Financial Planning and Analysis; and Ms. Sneh Thakur, who is the Head of Credit and Collections for the Micro banking piece. I would now request Mr. Ghosh to take us through the key highlights for the quarter, post which we will open the floor for Q&A. Over to you Sir!
Samit Ghosh
Thank you very much. Good evening and welcome to our third earnings call for the financial year 2019. The third quarter marked significant improvement in our business both on the liability as well as in the asset side. This is in line with our business plan. Our disbursements were to Rs.2885 Crores up 21% quarter-on-quarter. This led to gross loan book growth of 12% quarter- on-quarter to Rs.9349 Crores. Micro Banking vertical has shown good traction with disbursement growth of 17% versus the previous quarter. This is in line with what we have been mentioning over the last two calls and the result of number of new initiatives undertaken by our Micro Banking team. Micro and small business, affordable housing, rural banking has all been ramping up rapidly. Financial institutions group now has a book of 100 Crores with 75 Crores disbursed in this quarter. We expect this to ramp up in the next quarter, the current quarter. This is also our effort to support the well managed NBFC during thi
Ittira Davis
Thank you Samit. It is almost two years since the bank commenced operation. Our building phase is almost done. The seeds of growth planted over the period are now showing some green shoots. The numbers for the last quarter, which I have shared with you, provide that confirmation. Business growth, credit quality and other business numbers show the all round strength of the bank. From this quarter onwards the cost to income ratio will also show improvement. Ujjivan is now well set to move to the growth phase. Some of the numbers that I would like to just highlight very quickly, the overall disbursement is around 27%, gross AUM up 22%, net interest income for the bank up 34%, NIM for the bank is 10.8% for the nine months of the financial year and 11.5% for the consolidated entity. Consolidated profit for the quarter is 45.2 Crores, capital adequacy is at 22.2 and as we said before the number of branches completed are 464. The asset quality is very robust with the GNPA at 1.4% and the NNPA