Ujjivan Financial Services Ltd Management Discussions.

The Company, an 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%.


Particulars FY 2019-20 FY 2018-19 Growth (%) y-o-y
Total Income 2,969.38 2,013.62 47.46
Total Operational Expenses 2,553.47 1,809.52 41.11
Profit/(Loss) Before Tax 415.91 204.10 103.78
Profit/(Loss) After Tax 298.66 150.44 98.52

This report is being presented From the Banks perspective, and highlights a synopsis of the banking industry, business and financials of the Bank, which significantly dominate the consolidated financials and business of the Company. On a standalone basis, the Company is a non-operating Company.


Bank credit growth continues to be tepid, suggesting weak demand. Non-food credit of scheduled commercial banks (SCBs) grew by 6.5% y-o-y, as on May 8, 2020 compared to the 13% growth a year ago. The gradual moderation in credit offtake can be attributed to the risks in the NBFC space, coupled with stricter credit norms by banks fearing a piling up of NPAs in the corporate books. In comparison, aggregate deposits growth of the scheduled banks increased by 9.1% y-o-y, as against the 10.6% growth a year ago. The rate of growth has dipped due to lower contribution from metropolitan areas and consumer focus towards other modes of savings, such as mutual funds and market linked deposits. The negative growth in Q4 FY20 can also be attributed to the factors affecting the global economy. The only silver lining has been the agriculture sector, with imminent signs of a good crop since the summer sowing has progressed well.

While industrial credit has seen a de-growth, industrial production has also come to a standstill given, the nation-wide lockdown at the end of the financial year, impacting not only major industries, but also the small and micro industries that supply intermediary goods to major industries. The power consumption in the economy has dropped by 54% y-o-y, due to the slowdown.

The government and RBI have also been nimble-footed with their actions, stimulatory measures and timely interventions to prevent the banking industry from capsizing on multiple occasions. Moreover, the increase in cover on bank deposits has infused fresh confidence in retail depositors.

The economic slowdown induced by the COVID-19 crisis will impact bank credit growth to a large extent, with growth estimated to be in high single digits in FY 202021. Loan recoveries are expected to be affected, thus impacting profitability. Spike in NPA levels will lead to banks raising capital and consolidation of the sector. The Indian banking system is resilient and has the ability to bounce back in the medium- to long-term.

The government and RBI have swung into action with a slew of measures to inject liquidity into the banking system and stabilise the financial markets, and to repose public confidence in the wake of the COVID-19 situation. The numerous initiatives and measures to enhance liquidity in the economy, have come as a boost for banks, reducing their cost of funds. The changes in SLR, repo rate, funding via development finance institutions viz. SIDBI, NABARD and NHB are indicators of active focus towards the overall banking industry by the government. With the additional measures announced over the course of the current financial year to cover the COVID-19 pandemic, the economic revival package, which focuses on micro, small and medium enterprises, the common man, the labour class and the small businessmen, the banking industry overall, is set to be the cog in wheel of the entire gamut of economic activities. With direct lines of credit to NBFC and MFIs, and a clear guarantee by the government towards the first 20% loss on the commercial papers, a flow of funds towards the embattled MSMEs, will help the biggest chunk of the unserved and underserved, get better and higher access to credit.


Our approach to crisis management

The Bank has been closely monitoring the situation, preparing for all contingencies. A Quick Response Team (QRT) was constituted for monitoring and supervising banking operations and providing updates to the Top Management. A special committee of the Board - Business Continuity Monitoring Committee - has been formed to advise, monitor and assess the social, financial,

business, credit and risk impact under the current economic scenario. The Bank adopted a Work-from-Home policy for its Corporate and Regional Offices effective March 24, 2020, while most of its branches operated with minimal staff, adhering to the guidelines on branch timings issued by SLBCs, LDMs and local administration during the nation-wide lockdown. The Bank ensured adequate cash in its ATMs and advised customers to predominantly use ATM, Mobile and Internet Banking for their transactions, in view of the current situation. Customers and staff were also educated to maintain social distancing and take preventive measures to contain the spread of the virus. The Bank reached out to the staff and customers to ensure their well-being and express its solidarity in these trying times. As of the date of the report, the Bank has started disbursements to its existing customers with good repayment track record, and to new customers who are mainly engaged in agriculture and allied activities.

The Bank has effectively leveraged the downtime of the lockdown to promote extensive use of e-learning platforms to up-skill its employees. Around 92% of its staff has actively used the e-learning platforms and the focus is on re-engineering the business and back-end processes for better efficiencies, as well as on driving digital initiatives.

The Bank continues to remain well-funded even though the moratorium period on loans is affecting the usual cash flows, and is maintaining a liquidity buffer for unforeseen contingencies in the coming months. It is deploying the surplus high yield short-term assets, rather than lending in reverse repos to counter the cost of negative carry over of surplus funds. The deposits with the Bank are stable, with no significant withdrawals so far. The measures announced under the Regulatory Package, such as enhanced MSF and reduction in CRR, are also helping the Bank maintain sufficient liquidity. On the capital adequacy side, the Bank continues to be comfortable with a CRAR of 28.8% with a major proportion in the form of Tier I Capital.

With Unlock 1.0 kicking in from June, the Bank expects resumption of field operations in non-containment zones, resulting in further increase in business and collection volumes. They are working on offering more digital and local modes of repayments and educating customers on the same and are also closely monitoring their costs and keeping a tight leash on its expenses, deferring or avoiding all non-priority expenses. The Bank is very appreciative of RBI efforts towards providing relief to the borrowers and stabilising the financial markets to handle the disruption caused by the COVID-19 pandemic, and is confident on emerging stronger, with revised business processes and efficiency measures, post the crisis.

The COVID-19 situation has minimally impacted the financials of the Bank for FY 2019-20, as the national lockdown was imposed in the last few days of March, by which time, most of our scheduled collections had

already come in. The lockdown however did impact the typically high year end growth momentum of March and its volumes stood lower than those envisaged earlier and significantly lower than those in the previous month, which affected the interest and fee income. The surplus liquidity was carried forward as a buffer for the crisis period, which has led to a slight increase in finance cost for the last week of the month. The benefit of RBI dispensation on NPA recognition norms were applied on the moratorium portfolio and it prevented any spike in credit cost. In the wake of the COVID-19 pandemic and the ensuing nationwide lockdown since the last week of March 2020, that is expected to adversely impact the portfolio quality, the Bank made a prudential provision to the tune of Rs 70 Crores.


The measures announced by the RBI under the Regulatory Package for COVID-19, such as enhanced MSF and reduction in CRR, will help inject liquidity into the banking system, stabilise the financial markets and repose public confidence in the wake of the crisis situation. The stimulus through TLTRO, special refinance facilities of Rs 50,000 Crores to NABARD, SIDBI and NHB, to enable them to meet sectoral credit needs, reduced policy rates and other liquidity enhancing measures, will ease cash flow constraints and provide impetus for credit growth. Further, RBI dispensation allowing exclusion of assets under moratorium till May 31, 2020 from NPA classification norms, will also prevent a sudden surge in credit costs. Restrictions on dividend payout from profits for the fiscal year ended March 31, 2020, will help banks conserve capital and retain their capacity to absorb losses in an environment of heightened uncertainty.

Going forward, the unserved and underserved middle- and lower-income segment, large base of customers and their families, the youth segment, demand for affordable housing and policy interventions, MSME formalisation and growth as well as rural and agricultural segments, which offer great growth potential, are some of the major opportunities that would contribute to the expansion of its branch network and unbanked rural centres, thereby taking the Bank on its growth trajectory.


External economic shocks due to the COVID-19 crisis, risks of high touch operations and high volumes of cash collections, overheating of the Microfinance sector in certain geographies and increasing competition in the banking sector are some of the prominent threats that need to be countered. However, there is an opportunity for the Bank to partner with FinTech companies to enhance customer acquisition and experience.


Some of the prominent strategies for which the Bank is geared to capitalise its strength and network include diversified product offerings to enable multiple customer relationships, focus on Digital Banking and Analytics,

strengthen liability franchise and focus on increasing our retail base with granular and stable CASA, expanding the distribution network to increase customer penetration, focus on developing responsible banking behaviour for the unserved and underserved segments and diversified revenue streams.

Ujjivan Small Finance Bank Limited at a glance: March 31, 2020 (in I-GAAP):

• Gross advances at Rs 14,153 Crores as on March 31, 2020 as against Rs 11,049 Crores as on March 31, 2019; growth of 28%

• Disbursement during the FY 2019-20 was Rs 13,221 Crores as against Rs 11,089 Crores during FY 2018-19; an increase of 19%

• Total deposit of Rs 10,780 in March 2020 as against Rs 7,379 Crores in March 2019; growth of 46%; retail deposits grew 72% during the year from Rs 2,736 Crores in March 2019 to Rs 4,724 Crores in March 2020

• CASA increased by 86% from Rs 784 Crores in March 2019 to 1,459 Crores in March 2020

• 54.4 Lakhs customers in March 2020 as against 46.7 Lakhs customers in March 2019

• 43.5 Lakhs borrowers in March 2020 as against 40.2 Lakhs in March 2019

• CRAR of 28.8% in March 2020 as against 18.9% in March 2019

• Number of branches increased from 524 to 575 and number of ATMs increased from 385 to 475 during the year

• Total income increased from Rs 2,038 Crores in March 2019 to Rs 3,026 Crores in March 2020; an increase of 49%

• Net interest income grew from Rs 1,106 Crores in March 2019 to 1,634 Crores in March 2020; an increase of 48%

• Profit After Tax (PAT) increased from Rs 199 Crores in March 2019 to Rs 350 Crores in March 2020; an increase of 76%

• Return on Asset (ROA) improved from 1.7% in FY 2018-19 to 2.2% in FY 2019-20

• Return on Equity (ROE) increased from 11.5% in FY 2018-19 to 13.9% in FY 2019-20

• GNPA at 1.0% in March 2020 as against 0.9% in March 2019

• NNPA at 0.2% in March 2020 as against 0.3% in March 2019

• Cost to income ratio improved from 77% in FY 2018-19 to 67% in FY 2019-20

• Cost of fund improved from 8.5% in March 2019 to 8.2% in March 2020

• Ranked fifth among Asias Best Companies to Work For - 2020 by Great Places to Work

• Received the IBA Banking Technology Innovation Awards for The Best IT Risk Management and Cyber security Initiative

• Won the award for Best Microfinance Bank by Asia Money


1 Particulars FY 2019-20
Average Yield - across segment 20.0
Cost of Funds (CoF) 8.2
Net Interest Margin (NIM) 10.8
Return on Assets (RoA) 2.2
Return on Equity (RoE) 13.9
Cost to Income 67.0
Capital Adequacy (CRAR) 28.8


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 timely prevention and detection of frauds and errors, 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.


The Bank has a strong risk management framework in place to identify, mitigate and monitor material risks across all its functions. The key risks that the Bank is exposed to in the course of its business are Credit Risk, Market Risk, Liquidity Risk, Operational Risk and Information security. The hallmark of the Banks Risk Management function is its independence from business sourcing units, with the convergence only at the Board level.

The Bank has a conservative and prudent policy for specific provisions on NPAs, which is higher than the minimum regulatory requirements, while adhering to regulatory norms for the provision of Standard Assets. Market Risk arises largely from the Banks statutory reserve management and trading activity in interest rate market. During the year, the Bank had commenced trading in Government of India securities, (G-Sec) in a calibrated manner through its HFT portfolio. G-Sec trading activity was mainly undertaken on an intraday basis, though towards the end of the last quarter, the

Bank had started keeping open positions on an overnight basis. Trading profit booked during the year was small, but the Bank is poised to build on the experience and step up its trading book in the next financial year.

Liquidity Risk is the risk that a bank may not be able to meet its short-term financial obligations due to an asset- liability mismatch or interest rate fluctuations. The Bank managed its liquidity requirement and the associated risks efficiently during the year. As a part of this process, the Bank has established various limits to mitigate both liquidity and interest risks. The ALM situation of the Bank remained healthy through the year, and was tested for efficacy in simulated stress situations. The Bank had also enhanced and tested its Contingency Funding Plan (CFP).

The Bank has in place a Board approved Operational Risk Management policy to mitigate and manage Operational Risk. The Operational Risk management process is a top-down approach, and is driven by strong and sound operating procedures and internal control culture, with well-defined reporting and contingency planning. The Bank is continuously striving to enhance its processes. Manuals, an important spin-off to the various operational risk policies, were documented for key activities such as Risk and Control Self-Assessment (RCSA), Key Risk Indicators (KRI) and Loss Data Management.


The Bank has a structured management framework in the Internal Capital Adequacy Assessment Process (ICAAP) to identify, assess and manage all risks that may have a material adverse impact on its business/financial position/capital adequacy. The ICAAP framework is guided by the Banks Board approved ICAAP Policy.


The Bank remains resolute in demonstrating its core value of people first. Nurturing and developing talent continues to be the primary focus. The Company, at a standalone level, has five permanent employees. However, a total of 7,786 new employees joined the bank in FY 2019-20 and ended the year with 17,841 employees.

Maintaining diversity across the organisation, 21% of new hires were women, and the Bank closed the year with 19% of women workforce. The Bank also on-boarded differently abled employees and closed the year with 25 differently abled, across the organisation.

We continue to invest in our employees to excel at their job and develop them for the future. In addition to training on building banking skills, the Bank continues to enhance its focus on development of higher skills programmes at all levels.

Ujjivan has always believed in sharing its success with its employees and in line with its objective, the Bank launched its Employee Stock Option Plan in 2019. Options were granted to 28% of employees. In addition, prior to the IPO, the Bank also launched its Employee Stock Purchase Scheme, in which 4,359 of its employees opted to purchase the shares. We have also continued to focus on the health and well-being of our employees.

Great Place to Work Institute has ranked Ujjivan Small Finance Bank as 3rd in the Best Companies to Work For 2020. Ujjivan has been recognised as amongst the top 100 best places to work, for the last ten years in a row. In April, amidst the gloom of an unfolding pandemic, the Bank shone bright as amongst Asias top 5 best places to work (in the category of companies with over 10,000 employees).


The Bank is taking all efforts to proactively source quality borrowers and manage their repayments. The unfolding crisis due to COVID-19 has however been extraordinary, with events unfolding daily and sometimes hourly. The Bank continues to monitor the existing portfolio quality, while scanning the environment for signs of restart of business disbursal. We believe that our existing and proposed investments in people, process and technology, will help the bank emerge stronger and better from the current scenario.