Ujjivan Financial Services is the holding company of and we have seen the small finance bank reporting losses and higher NPAs which can be attributed to the second Covid wave. But what led to such losses and when can we expect to return to profitability?
As far as the business is concerned Nitin (Nitin Chugh, MD & CEO of Ujjivan SFB) is the right person to answer this question. From our perspective, obviously the impact was because of the second Covid wave, which took a toll on our portfolio and right now it is in recovery mode. But we do not know when the next wave is going to hit because not enough Indians have been vaccinated and with the festive season coming, there could be another knock down effect on us.
We have been very concerned about the portfolio quality and the management of the portfolio business. We are closely monitoring it and this is something we have been worried about not just now, but from last year itself. We are a very conservative organisation and we always believed that we should provide upfront and take appropriate action because that has been our philosophy in the past and that is what we would like to see again.
RBI has approved the merger of holding companies with small finance banks. When do you see that happening for your company?
We complete five years in the beginning of February and we can apply three months before that. So we would be applying three months before February, around November. Once RBI clears us for reverse merger, the whole process might take between 9 and 12 months. There are hurdles not only in the RBI but also from the Sebi perspective. There are a couple of issues for which they have to give us clearance. We are keenly watching what happens to Equitas because they are ahead of us in this process and we will follow suit. But our process will start in November and once our approval is there by February, it will take another 9 to 12 months.
A lot of people are watching very closely whether or not you have the intention to become a universal bank. Is that something that you are still considering and what work is being done towards that end?
Firstly we have to reverse merge. That is the first step and it will stabilise us. We are going through a very difficult time right now, not only from a portfolio quality point of view but also from a people retention point of view. Lot of the people who actually built Ujjivan have left and that makes life more difficult for us. We would have to stabilise the organisation, reverse merge and then, we will take up the universal bank licence largely because it is more efficient to operate from a capital perspective because the capital adequacy requirement in small finance bank is 15% whereas an effective capital adequacy requirement in universal bank is about 8%. That we will take up after our own reverse merger process is over,
