Dear Shareholders,

We are delighted to share the Annual Report for the fiscal year 2023-24. Reflecting on the past financial year, it is essential to emphasise that due to the dedication of the Management, all its employees, customers, the Board of the Bank, as well as the Board of Ujjivan Financial Services Limited (UFSL, the former promoter entity), the collaborative efforts and guidance received from all esteemed regulatory bodies like the Hon’ble NCLT, Bengaluru Bench, RBI, SEBI, ROC, Stock Exchanges, Depositories, and the continuing trust and support of our 8 Lakh plus shareholders, led to the successful completion of the Reverse Merger of UFSL with the Bank. With renewed strength and grit, we envision reaching new heights, pushing boundaries, and achieving remarkable success as we continue our journey and mission to provide banking and financial services to the un-served and the under-served customers as a responsible mass-market bank, focussed on building a sustainable tomorrow.

The Indian Economy expanded at a robust pace in FY 2023-24 with real GDP growth accelerating to 7.6% from 7% in the previous year, led by investment buoyed by government spending on infrastructure. Growth in private consumption demand, on the other hand, stood at 3% as against 6.8% in the previous year. Inflationary pressures moderated, albeit unevenly, during FY 2023-24 from 6.7% to 5.4%, reflecting the combined impact of calibrated monetary tightening, easing of input cost pressures, and supply management measures. Domestic financial markets remained stable during FY 2023-24 with orderly movements in the bond and foreign exchange markets. The banking industry registered a credit growth of 16.3%, surpassing the deposit growth of 12.9%. Credit to agriculture expanded by 20.1% and to MSME by 14.1%.

In the backdrop of the above, the Bank in FY 2023-24, continued to advance upon the solid foundation established in the preceding fiscal year by enhancing the quality of its portfolio, increasing business volumes, acquiring new customers, and extending its geographical footprint. Along with expanding our branch network, we enhanced our digital services and fortified our IT infrastructure, ensuring greater resilience and efficiency to support our expanding operations. During the year, the Bank excelled across key areas, and with disbursements of ₹ 23,389 Crores, our gross loan book increased by 24% to ₹ 29,780 Crores, and our deposits surpassed ₹ 31,000 Crores, ending at ₹ 31,462 Crores – a growth of 23%. Our asset quality remained robust, with GNPA at 2.1%, NNPA at 0.3%, and a Provision Coverage Ratio of 87% as of March 2024, which is among the best in the Banking Industry. MicroBanking cashless collections hit 43% in the last quarter of FY 2023-24, indicating a top industry performance. All the above achievements and the continuous extensive efforts of the entire Bank contributed to a record profit after tax of ₹ 1,281 Crores for FY 2023-24.

This remarkable performance was registered despite various headwinds impacting the BFSI sector in the previous year. I would like to briefly touch upon the various challenges faced and opportunities presented for the Bank during the year. First, on the macroeconomic front, high inflation levels at the commencement of the financial year, especially food inflation, had prompted the government to take various supply-side measures. The RBI, on the other hand, postponed the withdrawal of accommodation to ensure that inflation progressively aligns to the target while supporting growth. While these concerted efforts have helped in reining inflation rates within the tolerance band since September 2023, the Bank had to absorb the inflationary impact, which reflected in an increase in the cost of funds during the year. There is now a broad consensus that any accommodative stance would be reviewed by the RBI sometime in Q1 FY 2025-26, in light of the recent stress seen in summer crop production on account of the heatwave, rise in global food prices, and increase in industrial metals. Second, the growth of unsecured personal loans (including credit card receivables, consumer durable loans, and other personal loans) in banks between March 2017 to March 2023 registered a CAGR of ~21%, outpacing the personal loan growth, which exhibited a CAGR of 19% during the same period. Unsecured personal loans accounted for almost one-third of the overall banking system’s personal loan credit of ~₹ 41 Lakh Crores as of March 31, 2023. To arrest the buildup in unsecured credit and possible systemic risk, the regulator increased the risk weights in select categories of consumer and personal loans by November 2023, resulting in an increased capital requirement. While the Bank stands complied with these regulations, it has also introduced a policy, capping the exposure to consumer credit. It is imperative for the Bank to recognise the importance of enhancing credit quality by avoiding adverse selection of customers and refining collection practices. Third, the publication of a discussion paper on transitioning to dynamic loan loss provisioning for banks is likely to impact business performance, at least on profitability parameters. With the banking industry registering a robust performance in FY 2023-24, it is likely that the transition will be made applicable either in FY 2024-25 or FY 2025-26. Fourth, the regulator has also issued a transition path for SFBs to convert into Universal Banks. Such conversion shall be subject to the SFB’s fulfilling minimum paid-up capital/net worth requirement as applicable to Universal Banks, satisfactory track record of performance as an SFB for a minimum period of five years, and RBI’s due diligence exercise. The Bank has constituted an internal Working Group (WG) to explore the opportunities in this regard. The banking industry and the Bank continue to face threats on account of uncertainty surrounding geopolitical risks, election, government formation, and specific regulatory interventions on lending practices. However, the Bank’s risk management practices remain robust with preemptive measures being taken on the basis of internal analysis and external triggers.

Microfinance remains the flagship business for the Bank. Through our expertise, strong collection strategy, and increased focus on Individual Loans, the Bank graduated about 1.4 Lakh customers from Group Loan to Individual Loans during the year, and we expect that Individual Loan growth will continue to outpace Group Loan growth in FY 2024-25 as well. Our Affordable Housing, including Micro Mortgages, witnessed significant growth during the year, and we are confident that this segment will continue to scale new heights. During the year, our MSME business put its renewed business strategy into action with the help of process changes, tailor-made products, and new strategic partnerships with fintechs. Furthermore, newer lines of emerging business such as Vehicle Finance and Gold Loans have gained meaningful traction in the last few months, which will help fuel our next saga of growth. The Bank was able to increase its deposits with the help of initiatives such as a nationwide brand campaign, value-added products based on customer demand, Digital Fixed Deposits & Digital Savings Account, among others. The Bank remains committed to giving back to society and has continued its engagement in CSR activities while also spearheading new ESG initiatives. These achievements reflect our dedication to growth, innovation, stakeholder value, and sustainability.

While technology plays a crucial role in meeting all strategic imperatives, employees serve as our primary catalysts for change and progress within the Bank. Our HR policies are deeply rooted in the Bank’s core values, which include integrity, responsibility, fairness, respect, professionalism, and teamwork. With a commitment to enhancing the lives of both customers and employees, the Bank has received numerous accolades. Notably, Ujjivan SFB has been recognised as one of India’s top 25 best places to work in the BFSI sector for 2024, according to a study conducted by the Great Place To Work® Institute. Further, Ujjivan SFB has also been rated the ‘Best Small Finance Bank,’ and our home-grown app ‘Hello Ujjivan’ has brought us recognition as the Best Bank in Innovation.

I hereby, take this opportunity to welcome the new additions to the Board, Ms. Carol Kripanayana Furtado as the Whole-Time Director and Ms. Mona Kachhwaha as an Independent Director. With the recent appointment of additional women directors, we are pleased to announce that women now make up 50% (5 out of the 10 members) of our overall Board strength.

Further, as you know, Mr. Ittira Davis, the MD & CEO, has expressed his desire to retire early, with June 30, 2024, being his last working day. Mr. Sanjeev Nautiyal, a seasoned banker with over three decades of extensive experience in retail, SME, financial inclusion, operations, HR, international banking, and treasury, will take charge as the MD & CEO of the Bank with effect from July 01, 2024. I would also like to take this opportunity to place on record my utmost appreciation to Mr. Ittira Davis for the pivotal role he has played in the significant turnaround and recent performances of the Bank, and I also extend my best wishes to Mr. Sanjeev Nautiyal in his new stride as the MD & CEO.

As we step into the new financial year, the Bank draws inspiration from past turnarounds and notable achievements, fuelling our drive to reach even higher targets.

Yours truly,

Mr. B. A. Prabhakar

Chairman