In the midst of such a huge humanitarian crisis, we at Ujjivan Small Finance Bank remained resilient, anchored by our core mission of serving our customers, and continued to ensure the welfare of our teams and business partners. Our business saw a rebound from the initial setback in the business observed in H1 FY21 due to COVID-19 lockdown and delivered a report-card-pg-secd high business volume in the Q4 FY21.
Nitin Chugh
MD & CEO
"In the first half of the year, the Bank took a cautious approach towards microfinance lending in select pockets and sharpened focus on collections efficiency as lockdown measures were gradually eased in our core markets. After a muted first half, our assets business grew across product categories in the second half of the reporting year."
FY 2020-21 saw severe stress test on the entire financial ecosystem across the world in the wake of the pandemic. The global financial system has so far largely withstood the impact, even as the incidence and sheer scale of human misery and loss is enormous. Governments, central banks and financial regulators have mounted an extraordinary defence to mitigate the impact of the pandemic. Overall, these policy responses have contained the severity of the pandemic’s toll on financial markets and institutions and cushioned the shock to economic activity. After an unprecedented 24% contraction in the Q1 of the year, the country’s GDP (aided by the fiscal and monetary support measures of the Government of India and the RBI) gradually moved into positive territory, recording 1.6% growth in the Q4 FY21.
In the midst of such a huge humanitarian crisis, we at Ujjivan Small Finance Bank remained resilient, anchored by our core mission of serving our customers, and continued to ensure the welfare of our teams and business partners. Our business saw a rebound from the initial setback in the business observed in H1 FY21 due to COVID-19 lockdown and delivered a record high business volume in the Q4 FY21. With the gradual opening up of markets from the Q2 FY21, volumes picked up across asset and deposit businesses, reaching pre-COVID-19 level by end of the Q3 FY21. The Bank closed FY 2020- 21 on a very encouraging note, with Q4 FY21 seeing good growth across businesses.
In the first half of the year, the Bank took a cautious approach towards microfinance lending in select pockets and sharpened focus on collections efficiency as lockdown measures were gradually eased in our core markets. After a muted first half, our assets business grew across product categories in the second half of the reporting year.
After appropriate due diligence of the external environment, we took a conservative approach towards Micro and Small Enterprises (MSEs) lending in certain stressed segments and shifted our focus towards lending to semi-formal and formal segments for a greater balance in the portfolio. During the year, the Emergency Credit Line Guarantee Scheme (ECLGS) helped the MSE business ramp up their volumes after a disappointing Q1 FY21. In our institutional lending business, we focused on higher rated entities to avoid any adverse impact on our net interest margin.
In the Personal Loans segment we focused on low-cost acquisition channels, leveraging our diverse branch network and encouraging cross sell across our business verticals and limited our sourcing through fintech partnerships, DSA and digital acquisitions until Q4 FY21. Business volumes under the Housing vertical saw a steady ramp up with improved approval rates, despite restricted segments and stringent credit policy. The Bank’s Assets Under Management (AUM) registered a 7% y-o-y growth in FY 2020-21 over the previous year. Despite a slowdown in business activity in the first half on account of the pandemic, the Bank witnessed significant y-o-y growth in Housing (35%) and MSE (31%) portfolios, while the microfinance book stayed relatively flat. The new businesses of Personal Loan and Vehicle loans gradually scaled up in the year under review and now constitute 1.4% of the Bank’s portfolio compared to 0.64% a year ago.
We continued our focus on building a granular and stable deposit base. During FY 2020-21, we focused on improved sales productivity through better lead generation-conversion and also quality of acquisition. In FY 2020-21, our deposit book recorded 22% y-o-y growth driven by new retail customers. A total of 6.6 Lakhs new retail deposit customers were on-boarded during the fiscal. We launched a few products with enhanced value proposition, further fortifying our product mix. Our cost of deposits continues to trend lower at 7.1% in FY 2020-21, compared to 7.9% in FY 2019-20 led by significant CASA growth.
"For a large part of the year, our collections remained subdued on account of the COVID-19 pandemic impacting debt servicing ability of our borrowers. Hence, our gross Nonperforming Assets (NPAs) increased to 7.1% in March, 2021, compared to 1.0% in March, 2020. Moreover, our net NPA also grew to 2.9% in March, 2021 (0.2% in March, 2020). We have created a COVID-19 related provision of ₹172 Crores (1% of gross advances). Also, we maintained a provision coverage ratio (PCR) at 60%."
Despite a challenging operating environment, we demonstrated a resilient performance. Our claim is vindicated by our financials
During the year under review, we closely monitored the evolving situation. We reached out to our customers through calls and surveys to assess the pandemic’s impact on their livelihoods. We offered moratorium commencing from March, 2020 to August, 2020 and also undertook restructuring as per the RBI’s guidelines for eligible customers in Micro Banking, MSE and Housing segments. We engaged with our customers to explain how the moratorium policy would pan out for them.
We remained focused on portfolio management, deploying a multipronged strategy to strengthen our collection efforts. Our strong field force and collection agents gave our customers alternative options to make their repayments. We deployed additional teams, started tele-calling, actively promoted adoption of digital and alternate collection channels through Airtel Payment Banks’s points, PayTm, Instamojo, Bharat Bill Payment System and customised link through a payment gateway powered by CCAvenue.
There has been a continuous improvement in the collection efficiency post moratorium with the overall collection efficiency improving from 69% in August, 2020 to 94% in March, 2021. We implemented restructuring for 3.7 lakh accounts worth `852 Crores in the Micro Banking segment, 121 accounts worth `14 Crores in Housing and 78 accounts worth `13 Crores in the MSE segment. The restructured book witnessed improved collection efficiency of 74% against 49% pre-restructuring.
During the year under review, we undertook several digital initiatives, enhancing business processes and ensuring seamless experience to customers.
We introduced a new channel to make banking services accessible to customers in their neighbourhood. The channel - Money Mitra - will facilitate entrepreneurs running local businesses like kirana stores, medical stores and insurance agencies to offer retail banking solutions to the bank's customers exclusively. In these outlets, our customers can make a deposit, withdraw money, pay loan EMI and perform fund transfer without having to travel to branches. We established over 160 Money Mitra outlets across 16 states and plan to scale up further.
"We remained focused on portfolio management, deploying a multipronged strategy to strengthen our collection efforts. Our strong field force and collection agents gave our customers alternative options to make their repayments. We deployed additional teams, started tele-calling, actively promoted adoption of digital and alternate collection channels through Airtel Payment Banks’s points, PayTm, Instamojo, Bharat Bill Payment System and customised link through a payment gateway powered by CCAvenue."
Our resolve, readiness and resilience reflect in our team spirit. We are committed to building a culture that inspires people to perform, make a difference and reward people for their contribution. We are committed to providing opportunities for our people to fully realise their potential and develop a growth-driven career at our Bank. During FY 2020-21, we ranked 3rd among India’s ‘Best Companies to Work for 2020’ and ‘Best Workplaces Among Organisations with more than 10,000 Employees’ by Great Place to Work® Institute.
We formed a Quick Response Team (QRT) to monitor the situation on ground and provide guidelines during the pandemic to all the employees of the Bank. We continue to maintain a strong connection with our customers and staff, especially during the pandemic.
As our teams kept serving our customer in the pandemic scenario, it was our duty to take utmost care of them. Many functions were shifted to work from home and remote working mode. We offered facilities such as doctor on call, doctor on premises and employee counselling support on telephone. We put in place city-level COVID-19 taskforce to assist our employees and their families with hospitalisation and medical emergencies. We also ran vaccination camps for staff and their families and shall be reimbursing vaccination expenses for our staff.
In FY 2020-21, most of our CSR efforts were directed towards COVID-19 relief, covering ~7,74,000+ citizens and 71,500+ frontline workers. We started a COVID-19 education programme, which was primarily designed to create awareness about the pandemic, safety and preventive measures to more than 3,57,000+ beneficiaries. Ujjivan partnered with GiveIndia Foundation to support five major hospitals in the city of Mumbai. Through the foundation, Ujjivan was able to procure and provide over 5,000 Personal Protective Equipment (PPE) to Nair Hospital, Holy Spirit, KEM Hospital and Sion Hospital. The project saw an expenditure of `45 Lakhs from the CSR fund allocation of the Bank and supported 5,000+ healthcare professionals in the city of Mumbai. We also supported in setting up four full-fledged Intensive Care Units (ICUs) in CMC Vellore hospital in Tamil Nadu to ramp up their COVID-19 care and treatment facilities.
Our CSR activities are focused on serving the unserved and underserved through healthcare/ preventive healthcare, sanitisation, cleanliness, disaster relief, education, safe drinking water projects and livelihood support. Our community development programme, Chote Kadam in partnership with Parinaam Foundation carried out 24 civil projects across India in FY 2020-21 for the benefit of the underprivileged communities.
"In FY 2020-21 most of our CSR efforts were directed towards COVID-19 relief, covering ~7,74,000+ citizens and 71,500+ front line workers. We started a COVID-19 education programme, which was primarily designed to create awareness about the pandemic, safety and preventive measures to more than 3,57,000+ beneficiaries."
India is now coming out of the grip of second wave of COVID-19, and we do believe that the economic impact of the second wave will not be as harsh as the first one. The key difference this time is that we are now better prepared to deal with the crisis. We are also hopeful about the positive impact of the vaccination drives and reducing caseloads across states after calibrated containment measures were undertaken. We will continue to drive our business with cautious optimism, encouragement and support of all our stakeholders.
The Reserve Bank of India (RBI) had announced a slew of additional measures to boost liquidity and systemic stability in the banking system - to ensure adequate supply of credit to the health infrastructure that would help fight COVID-19 and offer relief through restructuring to the small businesses and selfemployed individuals affected by COVID-19 stress.
We believe that these measures will go a long way in ensuring adequate credit flow to the healthcare sector, stabilise the financial ecosystem and accelerate economic revival. Ujjivan SFB has already embarked upon the implementation of these guidelines and we are very positive about the impact it will have on our customers. We participated in the first SLTRO auction and raised `50 Crores which has since been fully deployed and further raised `100 Crores in the third auction. We assessed the impact of the pandemic on livelihoods and drew up a pool of affected customers. In line with the Resolution Framework 2.0 of RBI, we expect to restructure 7-8% of our book by the end of September, 2021.
The Bank is also in the final stages of launching a product targeted at COVID-19 healthcare facilities and will shortly begin working on building a COVID-19 loan book.
"Ujjivan Small Finance Bank completes five years of operations on January 31, 2022 which falls in the current financial year. In reference to the Small Finance Banks Licensing Conditions, the Bank needs to dilute Promoter shareholding to 40% within a period of five years. As next steps, reverse merger of Holding Company with the Bank is the most favourable option for us adhering to the licensing condition of diluting promoter shareholding."
Ujjivan Small Finance Bank completes five years of operations on January 31, 2022 which falls in the current financial year. In reference to the Small Finance Banks Licensing Conditions, the Bank needs to dilute Promoter shareholding to 40% within a period of five years. As next steps, reverse merger of Holding Company with the Bank is the most favourable option for us adhering to the licensing condition of diluting promoter shareholding.
RBI's clarification dated July 9, 2021, allowing Small Finance Banks to apply for reverse merger, three months before completing the five-year period is a very positive development for the Bank in achieving the dilution target. Bank has started working internally along with the Holding Company to initiate various steps* for effecting the reverse merger.
We are hopeful that the worst phase of the pandemic is over and with rapid progress in the mass immunisation programme, we will soon emerge stronger and more resilient going back to pre-COVID-19 times. Our digital initiatives that picked up momentum during the COVID-19 phase have already helped in streamlining our processes, offering a seamless and cost-effective service delivery to our customers. We acknowledge RBI’s timely intervention and announcement of additional measures that will help repose public confidence in financial systems and establish an optimistic environment that is conducive of a strong economic recovery. We expect FY 2021-22 to be a year of reasonable growth and stabilisation as we retain our sharp focus on improving our earnings, maintaining a healthy portfolio quality with emphasis on digitisation that would enhance our diverse product offerings. We are thankful to all our stakeholders – customers, employees and investors for being with us through the toughest phase of the crisis.
Warm regards
Nitin Chugh
MD & CEO
*These various steps may be elaborated (if required) like obtaining shareholders approvals of both Bank and Holding Company, approaching RBI, NCLT, SEBI for essential approvals etc.
Annual Report 2020-21