Ujjivan Small Finance Bank plans to expand its retail business next year after all its current outlets are converted to bank branches and will apply for a universal bank licence in five years, said Samit Ghosh, managing director and chief executive of Ujjivan Small Finance Bank.
“Our retail base is relatively small,” Mr. Ghosh said in an interview. “One reason is that it takes longer time. Second is we slowed down the branch expansion (due to impact of demonetisation).”
₹314-crore business
Retail business of the bank currently is at about ₹314 crore and as a percentage of total liabilities, it is 8.4%. “Next year, as we convert all our branches, our focus will go on to retail liability business and especially generating the current account and savings account (CASA) balances.” Retail lending involves loans to individuals and those meant for investment in housing, purchase of consumer durables and automobiles, educational loans and deferred payments on credit card expenditures or other purposes. The bank wants to take advantage as growing middle class incomes fuel demand for loans to buy new products.
Ujjivan got a licence for operating as a small finance bank in 2016. The central bank has capped lending by small finance banks to micro, small and medium enterprises, with loans to micro enterprises being limited to ₹25 lakh, small enterprises at ₹5 crore and medium enterprises at ₹10 crore.
Loans to micro service sector enterprises have been capped at ₹10 lakh and medium enterprises at ₹5 crore.
“The reason we will apply (for a universal licence) is because the capital adequacy requirement for a small finance bank is 15% whereas for a regular universal bank it is around 8-9%. Also, there are lot of restrictions on small finance banks in terms of how we branch. Universal banks have total freedom in branching.”
“We don’t have and we have to get a permission for everything. Then there are restrictions such as 75% has to be lend to priority sector which is not a problem for us although the loan size cannot exceed ₹25 lakh. So we will probably apply for a licence for an universal bank in five years and become a mass market bank and probably replace a lot of public sector banks,” Mr. Ghosh said. Ujjivan piloted third party life insurance with insurance majors such as Bajaj Allianz and HDFC Life last year and hopes to scale it up from April.
“We would also be looking at mutual funds and also services like motorcycle finances. There are people who provide these services and we would source them,” he said. Microfinance business accounts for 94% of the bank’s business. The micro, small and medium enterprises and housing accounts for the rest. “We want that to increase the second business to 50% in five years time. It is not that we are going to scale down our microfinance business, but we are going to rapidly scale up the MSME and housing. The ticket sizes of these loans are much larger. We are going to expand this virtually across the country.”
In terms of loan disbursals, Tamil Nadu tops with 15.2% followed by Karnataka (14.7%) and West Bengal (13.8%). “Because the demonetisation hit us we had a substantial credit cost. At the same time, if we converted all our branches to bank branches there will be a huge hit in terms of our expenses which would hit our bottomline,” Mr. Ghosh said.
During the current financial year, Ujjivan converted 152 branches and by the year end will add another 30. Next year it plans to convert a total of 511, including 127 in unbanked rural branches. According to RBI rules, 25% of branches will have to be in unbanked areas. “95% of the branch conversion will be finished next year,” he said.
The bank has a customer base of 3.7 million in 24 States and Union Territories. “Our focus is on unserved and underserved segments of our society. Our goal from that perspective has not changed. We didn’t set it up for the middle class and the affluent,” Mr. Ghosh said.
