The reverse merger of Ujjivan Financial Services into Ujjivan Small Finance Bank is expected to be completed by September 2023, the latter managing director and chief executive officer Ittira Davis says. In the backdrop of strong September quarter results, Davis discusses the small financier plans both on loan and the deposit franchise.

The trend across the banking industry has been that the deposit growth has trailed the credit growth. But in your case, the deposit growth is on par with loan growth for the September quarter. What has been your strategy to gain deposits and what is your focus area going ahead on the liability side?

Our deposit strategy is to go for retail deposits. We are using our branch network to get that. In doing so, what we have done is that we are paying good interest rates which are attractive to senior citizens and others. We are getting good traction on our deposits. That is how we have grown our deposit base so far in 2022-23 (April-March). We believe that given our performance, various other factors and our good interest rates, we should be able to continue to attract these deposits for the rest of the fiscal.  

Can you give us an outlay of your product line on the asset side?

Right now, we have some products which we are testing in the market and there are others which we are going to grow. For example, we will look to expand the vehicle finance portfolio in Q4. In this quarter, we will continue to make disbursements as we were doing in the previous two quarters. If you are looking at the next two quarters, we will continue to grow the businesses that we are already focused on. That is microbanking, housing, micro and small enterprises. Our vehicle finance portfolio is now producing about Rs 8-9 crore per month which we hope will go up to Rs 10 crore per month and that should continue. We have crossed Rs 3,000 crore on affordable housing loans and we will continue to grow that at a normal pace. The new product is gold loans. We are also looking at tractor loans. All of those are in the testing phase. These will be ready for launch in the new financial year.

Do you have a target for credit growth and deposit growth by the end of this year and for the next year?

For this year, we have given a guidance that our loan book will grow 30% year on year, which we believe we will be able to achieve. Our deposits growth will be higher than that. Overall, that is the strategy for the rest of this year. For the next year, as we get into the fourth quarter, we will develop a plan and finalise the same with the board. So, we are working on our budget for the next two years.

Do you plan to apply for a universal bank licence?

The Reserve Bank of India has said small finance banks can apply for a universal bank licence after five years. We meet the condition as we have been in the business for five years as an SFB. Technically, we can apply. But, we have not yet done so. We will do so at the right time once our reverse merger is completed. Right now, we are going through a reverse merger, with holding company Ujjivan Financial Services being merged with the bank. Once that is over and those formalities are behind us, we can look at making these applications.

When do you expect the reverse merger to be completed?

We have started the process in October and our conservative estimate is 12 months. By the end of September next year, we should hopefully complete it.

What is your FY23 target in terms of asset quality?

Our non-performing assets are coming down at a rate of 1-1.5 % per quarter. We hope it will continue in that direction. We do not have any specific number. We will try to maintain the pace at which we are going. As the ageing of non-performing assets grows, it becomes a little more difficult. We cannot give a guidance at this stage, but the net non-performing asset ratio at the end of September was 0.04%. We can try to make slightly better.  

What is the extent of traction for the Hello Ujjivan mobile application?

We had started it a few days ago. It is available on the Google Playstore. It is being downloaded for testing by our staff at this moment. It will be ready for full commercial launch in January. That is our target. The feedback that we are getting from the staff is very encouraging. It addresses issues which a non-tech-savvy customer will require. It prompts in eight languages, it tells you what to do. It guides you. You can also make a transfer (cash) through the app. So it is not just a teaching tool. It is also a tool that can actually do transfers. I think it will gain a lot of traction when we have the formal launch.

How do you see your net interest margin moving for the rest of FY23?

We are right now at a 9.8% net interest margin. We see it dropping by a few basis points. Our guidance is that it will stay higher than 9.5%. The interest rate hikes will start easing by the end of this financial year. In the new financial year, it will taper and the cycle will start reversing. That is our expectation. For the next two quarters, we see net interest margin averaging at 9-5-9.7%.