Ujjivan Small Finance Bank has reported a loss in the quarter gone by and NPAs have gone up sharply. Is this largely because of the COVID second wave?
We reported a loss of around Rs 233 crore largely for the fact that we have taken accelerated provisions of Rs 250 crore in terms of the GNPA that also went up from 7% of the last quarter towards 9.8%. So yes, there is stress on account of the second wave which was unprecedented in the manner that it affected us. We do think that the impact of the second wave will probably be going to lay out over this quarter as well. On that account, you have gone ahead and taken these provisions and that is how we reported loss in this quarter.
Could you tell us what provisioning you have done and what kind of an NPAs you expect in FY22?
We need to go through this in a manner that we are able to estimate as things play out. We know for a fact that things have really improved remarkably in July. Our collection efficiency has gone up to 93% and the business is also recovering. I think it is a good thing to probably go through this whole quarter and then come to a conclusion as to how much more provisions, if at all, in that quarter or even subsequently in the rest of the financial year would be required. At this point in time things are still evolving and multiples parts are moving, so it is very difficult to provide any kind of an estimate on that.
What has led to the high NPAs for you?
I think we have had an impact on both accounts. One for the fact that the there was a heightened level of infectivity in the entire country; our staff got infected, there were customers who got infected, we have a lot of loss of life also on the customer side. We also lost nine of our colleagues to the second wave. That apart, there has been a loss of livelihood for sure.
The other thing that was also very clearly happening was that people were preserving the cash that they had because livelihood had come to a halt. People were also holding on to a lot of money or whatever little money that they had. Also please remember, nearly 68% of our portfolio is micro finance and these are really the very small borrowers. The loan outstanding is usually in the range of Rs 30,000 to 40,000 and these people get hit the hardest.
When they start paying back, which is what we are seeing in July, that is when their business starts to recover, their livelihood starts to recover and, on that basis, we need to give them time and this is a segment which cannot bounce back in the next month. They lose livelihoods, they lose their cash flows and their income even for a month or two. It sets them back by that much in their cash flows, etc., and therefore the recovery has to happen over a period of time. Usually that is how it has happened in the past also.
Going forward, as things improve and there are certain segments which get more impacted all the time, like people who are really dependent on mobility and people who really need to go to work, and our own people because of the inability to move around for a very long period of time. The infection that we saw in our own staff was also a restriction that we had in this whole quarter. Once things start to ease out, as they are now, we just hope that we do not have to confront a third wave any more.
We are hoping that people will be back on their feet rather sooner. So, what we are certainly noticing this time is the recovery would be a lot sharper and quicker, but it is just that certain segments can take a little longer.
Are you cautious on your loan book growth given that over 60% of your exposure is to MFI segment which has been the worst impacted?
We had put out a guidance in our last quarter earnings of somewhere between 20 to 25% growth. I think we will need to recalibrate as things improve because the impact of the second wave was not completely known in the month of May when we had our results for the Q4 of last financial year. But there is certainly a momentum; the demand has come back.
There is demand for credit now. The only thing is that when customers do not pay for a prolonged period of time, they become ineligible and their credit bureau scores get impacted. So, they have to be assisted in different manners and that is why if you notice in our press release, we have mentioned that we would be undertaking the second version of the restructuring over this quarter because that really needs an assessment on the ground.
We are confident that things will definitely improve, but at the same time we do want to be careful and conservative and not open up things rather rapidly. We would rather want to do that a little gradually as things improve and take those measured calls in terms of giving access to credit because the demand is certainly there. It is just that we need to be careful about what extent customers will have the ability to repay.
Let us talk about the regulatory environment that the RBI approved, the whole merger with respect to the holding company with the Small Finance Bank. When do we see that happening? Could share some timelines with us?
What RBI has done is that they have allowed us to apply three months before we complete five years which the earlier norm said that you can apply only after completing five years. That is the principal change in the overall approach. We finish five years on 31st January 2022 and three months prior to that we would apply to RBI. There are certain procedural steps before that we have to go through and once we apply, then it is a whole process of RBI approval and other regulatory approvals which is what we put out in the investor presentation also. We do expect this whole process to get completed in about 12 months’ time.