ujjivan financial services ltd share price Management discussions

The Company, a RBI registered NBFC-Core Investment Company is the promoter of ‘Ujjivan Small Finance Bank Limited (hereinafter referred to as “USFB” or "the Bank”). The Company on a standalone basis has no operation of its own and derives its value primarily from its investments in USFB where it holds 83.32%.

Key highlights pertaining to the consolidated financials (as per Ind-AS) are given below:

(Rs. in Crores)

Total Income 3,092.00 3,181.00 -2.80%
Total Operational Expenses 3,396.00 3,500.32 -2.98%
Profit/(Loss) Before Tax (303.96) (319.33) 4.81%
Profit/(Loss) After Tax (230.50) (239.11) 3.60%

This report is being presented from the Bank perspective and highlights a synopsis of the banking industry, business and financials of the Bank which predominately dominates the consolidated financials and a standalone basis the Company is a non-operating Company.


The beginning of 2022 marked the third year of the COVID-19 pandemic for India and the world, ushering in newer challenges for the healthcare systems and global economies. However, businesses continuity, coupled with rapid vaccination coverage, led to a stronger resilience, pointing towards a GDP growth of 9.2% for FY 2021-22, the highest amongst the worlds largest economies.

In FY 2022-23, the Indian economy is expected to bounce back to normalcy, after overcoming COVIDs sharp adverse shock. This process has consumed two years, with FY 2020-21, suffering major contraction, and FY 2021-22, allowing enough recovery to enable the economy to reach back to a real GDP magnitude, only marginally above its pre-pandemic FY 2019-20 level. Even as policymakers have been looking forward to the prospects of a normalised Indian economy, another layer of challenges has gathered momentum in the form of surging prices of global crude and primary products, along with an accentuation of supply-side bottlenecks. These issues in fact, pre-date the recent geopolitical developments.


Bank credit growth revived, post a muted performance last fiscal. Deposit growth, CASA maintained its upward trajectory, reflecting continued preference for precautionary savings; however, it would be interesting to see the deposit trajectory in a rising interest rate scenario.

As per RBI data, on a y-o-y basis, non-food bank credit registered a growth of 9.7% in March 2022 as compared to 4.5% a year ago. Credit to agriculture and allied activities continued to perform well, registering growth of 9.9% in March 2022 as compared to 10.5% in March 2021. A bigger swing came in because of growth in credit to industry, which picked up to 7.1% in March 2022 from a contraction of 0.4% in March 2021. Size-wise, credit to medium industries registered a robust growth of 71.4 % in March 2022 as compared to 34.5 % last year. Credit growth to micro and small industries accelerated to 21.5% from 3.9%, and credit to large industries recorded a marginal growth of 0.9% against a contraction of 2.5% during the same period last year. businessoftheCompany;on Within industry, credit growth to ‘all engineering, ‘beverage and tobacco, ‘chemicals and chemical products, ‘construction, ‘food processing, ‘infrastructure, ‘leather and leather products, ‘mining and quarrying, ‘petroleum, coal products and nuclear fuels, ‘rubber plastic and their products, ‘textiles and ‘vehicles, vehicle parts and transport equipment, accelerated in March 2022 as compared to the corresponding month of the previous year. However, credit growth to ‘basic metal and metal products, ‘cement and cement products, ‘glass and glassware, ‘gems and jewellery, ‘paper and paper products and ‘wood and wood products, decelerated/contracted.

Credit growth to services sector accelerated to 8.9% in March

2022 as compared to 3.0% a year ago, mainly due to improvement in credit growth to NBFCs and robust credit offtake in ‘trade and ‘transport operators.

Personal loans segment continued to expand at a robust rate and grew by 12.4% in March 2022 from 10.7% in March 2021.

As India enters ‘Samvat 2079, the third wave seems to be behind us, and with the removal of all restrictions, alongside a broadening of vaccination coverage, economic activity is returning to speed. Most sectors of the economy are reaching or have exceeded pre-pandemic levels. Notably, bank credit has gathered pace, and the job market is picking up steam. There is an acceleration in the travel and hospitality sectors. The construction and real estate sectors have also seen momentum.

The Bloomberg Commodity Index hit an 8-year high in early March, with prices soaring across the board, on war-induced supply shocks. The 10-year benchmark yields ended the month of March 2022 at 6.85%, hardening by 67 bps compared to previous year. Benchmark yields remained rangebound even as globally, yields continued to rise, owing to higher inflation and the ongoing Russia-Ukraine conflict, which led to significant rise in commodity prices. With no G-sec supply in the month of March, the domestic markets remained in a narrow range, as investors continued their buying spree to fulfil regulatory requirements. Since mid-March, however, it has been exhibiting two-way movements. Crude oil prices rocketed to a 14-year high of $ 133 per barrel in the first week of March, as Russia threatened to cut-off supply to the European nations that are heavily dependent on Russia for their oil and gas requirements. Although the prices eased subsequently, the domestic macroeconomic conditions have begun to improve with the rapid retreat in COVID-19 infections, and the resumption of economic activity in normal modes of functioning. Daily infections plunged to 861 on April 11, 2022 from a peak of 3.47 Lakhs on January 20, 2022.

CPI for the month of March 2022 stood at 6.95%, recording a 9-month high. The inflation has now breached the RBI MPC upper tolerance band of 6%. Inflation is expected to remain high due to rise in commodity prices in the international markets on the back of the ongoing Russia-Ukraine conflict.

On the expected lines, FED in its FOMC meeting held in the month of May, raised the Federal Funds target range by 50 bps to 0.75% - 1%. The beginning of this hiking cycle came on back of higher inflation, tight labour market conditions, and the current

Russia-Ukraine situation, which may also have a long-term bearing on the rates. GST collections continue to be buoyant, touching an all-time high of 1.68 Lakhs Crores in April 2022, thus helping the government to further push its initiatives in infrastructure investments.

The Reserve Bank of India (RBI) took various initiatives towards normalisation of liquidity management to pre-pandemic levels by reducing additional liquidity from the market, by conducting regular Variable Reverse Repo Rate (VRRR) Auctions, and with the introduction of the Standing Deposit Facility (SDF) as the basic tool, to absorb excess liquidity, in addition to narrowing the Liquidity Adjustment Facility (LAF) to 0.5% from 0.9%. In the recent off-cycle MPC meeting, RBI hiked the Repo and SDF rate by 40 bps, and also increased the CRR requirement by 50 bps. The increase in CRR will suck out the excess liquidity to about 87,000 Crores from the markets.

The RBI, on May 4, 2022, raised repo rate by 40 bps, and also raised CRR by 50 bps to 4.5%. The move has stemmed from rising inflationary pressures and outward flow of the US dollar. Taking note of the said factors, we expect an upward pressure on yields across the curve. We also expect the long-term yields to inch up at higher levels, owing to inflationary and supply pressure in the coming months. Owing to the above factors, we shall remain watchful and stay invested in lower-to-medium duration of the yield curve.

Bank Strategy

The Covid-19 pandemic has ushered in a true VUCA (volatility, uncertainty, complexity and ambiguity) environment. This crisis is dominated by unpredictability and uncertainty about the future with complexities arising in the socio-economic and healthcare structure. Responding with agility and adaptability in decisions and actions is the need of the hour.

Diversify product offerings to enable multiple customer relationships

Offering a comprehensive suite of products and services as well as personalised customer experience continues to be a significant objective. With a strong base of liability customers built over the past four years and our legacy microfinance customer base, we are poised to offer our other product offerings to them. Our focus will be on creating need-based products for each of our segments. We shall expand our offerings to MSE customers by offering products for the formal segment and introducing bill discounting and non-fund based credit facilities. In housing, we intend to launch specific offerings targeted towards rural borrowers and tie-up with government bodies and focus on ready to move-in constructions projects. We plan to add balance transfer, and pre-approved personal loans to our offerings. Strengthening of fintech alliances will provide access to new customers. For institutional segments, new products such as Bank Guarantee will be launched with further enhancement of interbank and exposure limit from various mutual funds, insurance companies and various cooperative banks. On the liability front, our emphasis will be on implementing digital solutions for government and institution businesses, such as Public Funds Management System (PFMS). We plan to increase our reach among small and medium size retailers so POS and QR led acquisition shall be a key area of focus.

Focus on digital banking and analytics

The Bank has set up a dedicated Digital Banking team to drive a central digital strategy to leverage technology in order to enhance customer experience while maximising returns on technology investments and reducing cost of operations. The main drivers of this initiative are digital innovation, application programming interface (API) banking, fintech engagements and partnerships, robotic process automation, artificial intelligence, digital lending, payments, digital marketing and data analytics and insights. During the year, the focus will be on end-to-end process digitisation to strengthen the contactless disbursements and repayments. Data analytics will be utilised for actionable insights to make informed decisions. We will leverage our full-stack API Banking platform to partner with the fintech ecosystem for innovative products and solutions for our customers. Digital channels will be utilised for new customer acquisition and delivery of service.

Strengthening liability franchise, and increasing our retail base

The Bank has been focusing on creating a sticky base of granular retail deposits to fund its asset growth. Our growth on the retail deposit base, CASA deposits, and customer acquisition, has been significantly healthy and encouraging. Also, we offer the best-in-class deposit rates to our customers, which further aids in garnering deposits. We propose to meet a majority of our funding requirements through current account saving account

(CASA) deposits as well as recurring, and fixed deposits, by building a sticky deposit base, and attracting new customers. We shall drive the usage of our accounts by leveraging our dedicated customer service, and user-friendly apps. Our focus will be on improving the right sourcing mix of customer segments and product variants, with nearly 50% contribution from flagship products with higher balances.

Increased customer penetration

We are continually adding more channels to enhance our customer outreach. We will develop fintech alliances, as an avenue for low cost acquisition of customers, and providing innovative solutions to them. Our phone banking unit provides additional support in terms of servicing and also generating/ converting leads for businesses. We extensively use the digital platform to market our products and services through dedicated programs, which use analytics and customise messages for target audience. We shall scale up our neighbourhood transaction points to seamlessly service our customers, staying far away from our branches. We plan to use the right combination of physical and digital channels, and partnerships, to expand our reach and deliver value to our customers.

Responsible banking for the unserved/ underserved segments

Committed to financial inclusion of the unserved underserved segments, and driven towards fostering financial discipline among our customers, we intend to continue training and educating our customers about the risks of over- indebtedness, and multiple borrowing, and the benefits of putting their savings in a bank, and availing insurance products. We shall continue to partner with Parinaam Foundation, to offer financial literacy programs to drive financial

We are also developing an AI platform to help our customers fulfil service requests, and basic transactions in the language and channel of their choice. We shall drive adoption of digital channels among our customers to facilitate a low cost, convenient, safe, and seamless transaction experience, for the customers.

Diversify revenue streams, control costs

Our focus is on supplementing the revenue stream through fee and non-fund-based revenues. We shall leverage our banking outlet network, digital channels, diversified product and service portfolio, and our large customer base, to develop our fee and commission- based business. Our treasury team effectively trades and manages our funds, by capitalising on the opportunities presented by the market. New products for institutional clients will also add to the fee incomes. RBI relief measures have classified lending by SFBs to MFIs as priority sector lending. This will help build priority sector advances in surplus of the targets mandated by the RBI, and trading of priority sector lending certificates will continue to be an important source of fee income.

Key business and financial performance highlights of the material listed subsidiary ‘Ujjivan Small Finance Bank Limited (USFB) (in I-GAAP) for the FY2021-22 :

• Gross advances at 18,162 crore as on March 31, 2022 as against 15,140 crore as on March 31, 2021; growth of 20% Y-o-Y

• Disbursement during FY 2021-22 was 14,113 crore as against 8,397 crore during FY 2020-21; growth of 68%

• Total deposit of 18,292 as on March 31, 2022 as against 13,136 crore as on March 31, 2021; growth of 39%; retail deposits grew 59% during the year from 6,242 crore in March 2021 to 9,921 crore in March 2022

• CASA increased by 85% from 2,699 crore in March 2021 to

4,993 crore in March 2022

• 64.8 lakh customers in March 2022 as against 59.2 lakh customers in March 2021

• 37.9 lakh borrowers in March 2022 as against 40.1 lakh in March 2021

• CRAR of 19.0% in March 2022 as against 26.4% in March 2021

• Number of branches remained unchanged at 575 in March 2022 when compared to previous year and number of ATMs increased from 491 to 492 during FY 2021-22

• Total income increased to 3,126 crore in March 2022 from 3,108 crore in March 2021; an increase of .6%

• Net interest income grew to 1,744 crore in March 2022 from 1,729 in March 2021; an increase of .9%

• Profit after Tax (PAT) declined to (415) crore in March 2021 from 8 crore in March 2021 primarily due to significant increase in provisions and contingencies;

• . Return on Asset (ROA) for FY 2021-22 is (1.89%) as against 0.04% in FY 2020-21

• Return on Equity (ROE) for FY 2021-22 is (13.8%) as against 0.3% in FY 2020-21

• GNPA at 7.3% in March 2022 as against 7.1% in March 2021

• NNPA at 0.6% in March 2022 as against 2.9% in March 2021

• Cost to income ratio increased to 72% in FY 2021-22 from 61% in FY 2020-21

• Cost of fund improved to 6.3% in March 2022 from 7.3% in March 2021

• IBA – Banking Technology Award 2021 Best IT Risk & Cyber Security Initiatives (amongst SFB / Payments Bank)

• DSCI Excellence Awards 2021: Winner Best Security Practices in NBFCs & Small Financial Institutions

• Great Place To Work? Institute: Ranked 11th among ‘Indias Best Companies to Work For 2021. Certified by GPTW for 12th consecutive year

• BFSI Excellence Awards 2021 Best Omni channel

Campaign Management

• IDEX Legal award 2021Litigation Department of the Year

USFB - Key Ratios as on March 31, 2022

Particulars FY 2021-22
Average Yield – across segment 16.6%
Cost of Funds (CoF) 6.3%
Net Interest Margin (NIM) 8.8%
Return on Assets (ROA) (1.9)%
Return on Equity (RoE) (13.8)%
Cost to income 72.0%
Capital Adequacy (CRAR) 19.0%
NNPA 0.6
LCR 152%

Future Outlook

With the economy gradually and steadily recovering and our Bank witnessing a remarkable turnaround during the last quarter of FY21-22 and first quarter of the FY22-23, we confident that the future of our Bank looks brighter than ever before as credit demand is back to normalcy. We are confident that the momentum built in the last six months would continue in the current fiscal and in the years to come which would enable our Bank to attain newer heights in terms of growth, size, deposit mobilization and profitability.

Internal control systems and adequacy

The Company has adopted the policies and procedures for ensuring the orderly and efficient conduct of its business, including adherence to the Companys policies, the safeguarding of its assets, the accuracy and completeness of the accounting records and the timely preparation of reliable financial information. Further, the management regularly reviews the control for any possible changes and takes appropriate actions.

Risk Management

The Company is a non-operating holding Company and its main objects are to carry on the business of making investments in group company(ies) in the form of securities and providing guarantees etc. and to carry on financial activities, whether

India or outside, in the nature of investment in bank deposits, money market instruments (including money market mutual funds and liquid mutual funds), government securities, and to carry on such other activities as may be permitted and prescribed by the relevant statutory authorities for core investment companies from time to time.

Since the Bank is a separate listed entity, the Company can only have a distant oversight on the risk management practices adopted by the Bank. The Company expects that the risk management committee of the Bank adopts the best risk practices, reviews its risk management framework and verifies adherence to various risk parameters and compliances in the best possible way. The Company has a duly constituted Risk Management Committee of the Board and has in place its risk management policy which highlights the functions, implementation and the role of the committee and the board.


The year 2021-22 proved that with persistence, all hurdles and impediments can be eradicated, and we can rebuild and achieve progress with a team of passionate and industrious people. Our faith in our people, came through at a time when the organisation most needed it, after the first two quarters marred by Covid issues. We saw the impact of people coming together and aligning to the organisational goals and outperforming in the third and fourth quarters. This was also a year, where the people pillar of USFBs mission was put to test, ‘provide professionally rewarding careers to employees and, attract and retain quality talent. We were able to attract seasoned senior management professionals for the Bank in important roles like Business Head -Vehicle Finance,

Chief Information Officer, Head of Digital Banking, and Chief Financial Officer. At the same time, we were able to grow some of the internal talent to senior management level as well. In line with our mission, we are driven to build better lives for our customers as well as employees. This drive has resulted in many accolades. We were ranked 11 amongst Indias Best Companies to Work for in 2021 as per the study conducted by Great Place to Work? Institute and Economic Times across 20 industries yet again, for the eleventh consecutive year. The two areas most impacted during the pandemic were physical interaction with the front-end teams, and also physical induction and trainings. We were able to bring back physical interaction forums like Branch Representative meetings with the branch employees. Physical induction training for the front-end business teams was started across India. The focus of hybrid model of training and certifications was also quite high and the same was driven through our Learning Management System – SWAY@M. This was also a year, where we leveraged the HRMS, implemented last FY, and all HR processes were digitally implemented through the system.

In continuation with the focus on health and safety of our employees, a vaccination drive for employees was prioritised and propelled across the organisation. The result was that 99.68% of employees are vaccinated, and the third Covid wave did not have any major impact on employee health and safety. We also took forward our well-crafted benefits program, which focused on wellness and preventive care. We extended our work-from-home policy, and continued to provide the infrastructure for remote working. We also ensured that services like ‘Doctor on

Site from registered medical practitioners, were made available for our employees. Unlimited audio and video consultations with general physicians and dieticians for employees and their families, using ‘Doctor on Call and mental health counsellor services, were made available.

We have a well-established Welfare and Relief Charitable Trust to strengthen our contribution towards employees. The Trust supports beneficiaries affected by unforeseen exigencies. We continued to extend financial support to our colleagues, and their family members, through the Trust, for treatment expenses, related to COVID-19, among others.