INDIAN ECONOMY
While the global economy grappled with macroeconomic challenges, India sustained its positive growth trajectory in Global comment - FY23-24. Indias economy showcased a remarkable surge, with the GDP growth rate reaching an impressive 7.6% in FY23-24 2023-24. Driving this strong economic momentum was a substantial uptick in private investment spending, which grew by 10.6% year-over-year (YoY)1.
INDUSTRY OVERVIEW
Indian banking industry
Banking Sector loan portfolio is estimated to grow by 16% (excluding HDFC merger impact) and deposits estimated to grow by 13% during FY23-24 2023-24.
Small finance banking industry
Small Finance Banks2 (SFBs) were introduced in India with the aim to provide financial inclusion and credit access to underbanked and unbanked segments of the population. These banks have played a crucial role in extending banking services to the economically weaker sections of the society, small businesses and entrepreneurs, facilitating inclusive growth.
SFBs have endured various challenges over the years, including demonetisation, implementation of the Goods and Services Tax (GST), the NBFC crisis and the global pandemic (Covid-19). As SFBs primarily cater to economically weaker sections of the society / small businesses, the Covid-19 pandemic has been especially difficult for the SFBs to navigate as it resulted in a period of high loan delinquencies and credit costs, hindering the profitability of the industry. However, with the improvement in the economic landscape, resilient business model of SFBs and their healthy financial position, SFBs successfully navigated the crisis and regained their healthy profitability and even improved on customer acceptability, brand building and overall financial performance during the period.
SFBs have been diversifying their loan portfolios, expanding in segments such as home loans, vehicle loans and MSME financing. While building a strong granular and retail deposits base remains a journey, SFBs have made commendable progress in establishing a strong deposit franchise.
The successful IPOs and listings of four small finance banks (SFBs) during FY23-24 2023-24 mark a significant milestone in regaining investor confidence in the sector. The healthy investor interest witnessed in these IPOs, coupled with the availability of adequate capital for growth and the acceptability of SFB shares among public market investors, reflect the investors trust in the sector. This achievement demonstrates the sectors ability to overcome challenges, adapt to changing market conditions, and position itself as a credible investment opportunity. With eight SFBs now listed, the sector has gained greater visibility and credibility, attracting a broader range of investors seeking to participate in the growth story of these specialized banks, which cater to the under banked and unbanked segments of the population. The consistent focus on financial inclusion and presence primarily in relatively under penetrated geographies and locations have been the primary growth driver for the SFBs. The rural and the semi-urban areas provide a vast untapped market; with localised approach, good understanding of the target customer base and tailored product offerings, SFBs have been able to steadily expand their network in the areas, capitalising on the growing demand of financial services from the segments.
Furthermore, improving economic landscape, rising income levels and increasing financial literacy have created a favourable environment for SFBs to proliferate their businesses. Increasing credit demand is providing a lucrative opportunity for the SFBs. It is expected that diversified product offerings and customised lending solutions will prove to be beneficial for small finance banks.
Microfinance industry
The Indian Microfinance Institution (MFI) industry has emerged as a crucial driver of financial inclusion. They play a significant role in providing access to credit, savings and other financial services to individuals and small businesses that are often overlooked by traditional banking channels. MFIs have become instrumental in promoting entrepreneurship, improving income generation and overall socio-economic development in the rural and semi-urban areas.
The microfinance industry has made concerted efforts to expand its reach into rural and semi-urban areas, and these efforts have yielded positive results. The microfinance loan portfolio witnessed robust growth, expanding by 25% year-on-year to _3.99 lakh crore as of December 2023 from Rs.3.21 lakh as on December 2022. This growth was supported by the addition of 1 crore new clients over last one year serving 7.4 crore unique borrowers.
Furthermore, MFIs are embracing technological advancements and leveraging cutting-edge solutions to enhance their operations and deliver better services to their customers. The adoption of digital banking platforms, usage of E-sign and E-KYC, complete digital onboarding and journey, data analytics and cyber security measures are transforming MFIs operations.
These initiatives have not only optimised efficiency and improved transparency but also enable personalised banking experiences, streamlined processes and enhanced security measures, ultimately contributing to the industrys long-term growth and impact.
Micro, Small and Medium Enterprises (MSME)
The Micro, Small and Medium Enterprises (MSME)3 sector has significantly contributed to the Indias economic growth, Gross Domestic Product (GDP) and manufacturing output and bolstered employment generation. According to the latest data, the MSME sector accounts for around 29% of the overall GDP and 36% of the manufacturing output. Recognising the importance of MSMEs, the Indian government has implemented various schemes and programs to support the development of the sector. These initiatives aim to provide credit support, encourage new enterprise development, promote formalisation, offer technological assistance, develop infrastructure, impart skill development and training and facilitate market access for MSMEs.
Housing Finance
The Indian Housing Finance4 sector has recorded healthy growth in the recent years. The growth can be attributed to several factors, including rising incomes, enhanced affordability and substantial government support through initiatives such as the Pradhan Mantri Awas Yojana (PMAY). The sector has been playing a crucial role in meeting the housing needs of millions of individuals and have contributed significantly to the overall growth and development of the nation. The mortgage penetration rate in India remained modest overall but with a low penetration rate in rural and semi-urban areas. This highlights the vast untapped potential, especially in these areas. According to estimates, the affordable housing segment stands as one of the fastest-growing domains, fuelled by robust government incentives and subsidies.
The interim Budget 2024-25 further bolstered this segment by announcing a scheme that will enable deserving sections of the middle-economic class ‘living in rented houses, or slums, or chawls and unauthorized colonies to buy or build their own homes. Furthermore, with the advent of digitization in the real estate sector, the changing demographics of homebuyers and the increased use of advanced technology solutions, the industry is poised for growth in the forthcoming years.
Commercial Vehicle and Construction Equipment Finance
The Indian commercial vehicles market is a crucial component of the countrys economic landscape. Growth is likely to be driven by improvement in macro economic conditions, healthy traction in industries and replacement demand. Similarly, the construction equipment industry in India is estimated to grow at a healthy pace. The increasing urbanization rate, coupled with the governments focus on improving road infrastructure and boosting infrastructure activities, are driving the demand for construction equipment. Notable initiatives, such as the allocation of H 10 lakh crore (USD 122 billion) for infrastructure in the Union Budget 2023-2024, are expected to further propel the markets growth.
THE BANKS OVERVIEW
With its headquarters in Varanasi, Uttar Pradesh, Utkarsh Small Finance Bank Limited (USFBL) was incorporated on April 30, 2016 as a public limited company under the Companies Act, 2013. As of March 31, 2024, the Bank has established a strong presence nationwide through its 888 banking outlets spread across 22 States and 4 Union Territories of the country. The Bank also enjoys well-marked presence in rural and semi-urban areas. Exploring the underbanked segments of the country has not only proven to be lucrative for the growth of the Bank but has also enabled the Bank to comfortably meet RBIs requirement of a minimum of 25% of branches in Unbanked Rural Centres (URCs). As of March 31, 2024, 27% of the Banks banking outlets were located in URCs. The Bank is expanding its network consistently and has opened more than 200 branches over the last two financial years. This expansion is expected to bolster the business growth of the Bank and facilitate the development of a diversified business profile.
The Banks branches are classified into Micro-Banking (MB) and General Banking (GB) branches. As of March 31, 2024, the Bank had 612 MB branches and 276 GB branches. While MB branches focus primarily on micro-banking loans and financial inclusion in rural and semi-urban geographies, GB branches, located primarily in metropolitan and urban locations, provide services on deposit mobilization and other lending products such as MSME (Retail Assets), housing loans, commercial vehicle & construction equipment loans.
The Bank aims to promote financial inclusion and provide access to banking services to underserved and unserved sections of the society such as women entrepreneurs, low-medium-income households, micro and small enterprises, and low-middle income home buyers. In line with the objective to serve the underserved and unserved, USFBL has adequate presence in the less financial penetrated areas of Bihar, Jharkhand and Uttra Pradesh which accounted for 60% of the Banks gross loan portfolio, as on March 31, 2024, reflecting significant growth potential. The Bank is also expanding its footprint across other geographies. Utkarsh (including through its promoter company, UCL) started micro-banking lending from Uttar Pradesh in September 2009. The Bank has steadily built an impressive track record in the segment, laying the foundation for sustained growth. While the Bank continues to expand its micro-banking business, it is also building other retail loan products such as MSME (Retail Assets), Housing and CV & CE.
As of March 31, 2024, a robust workforce comprising 16,081 employees served a total customer base of more than 4.5 million. The Banks gross loan portfolio stood at Rs.18,299.28 crore as on March 31, 2024.
USFBL provides a diversified banking services as permissible for small finance banks. The Banks products such as Savings Accounts and Current Accounts with variants meet savings and transaction requirements of the customers. Furthermore, the Bank leverages digitalisation to provide transactional ease through internet, mobile banking and UPI. The Banks deposits have grown from Rs.13,710.14 crore in March 31, 2023 to Rs.17,472.60 crore as on March 31, 2024.
The Bank is led by the Managing Director and Chief Executive Officer, Mr. Govind Singh, who has over 25 years of experience in the banking and financial services sector. The Banks Board consists of members who possess varied industry expertise. They provide strategic guidance that bolsters the growth of the Bank. The Banks Senior Management team has significant experience in the banking and financial services industry, enabling the bank to grow in a sustainable and responsible manner.
BUSINESS PERFORMANCE
The Bank has established a strong rural and semi-urban presence with around 63% of branches in those areas. The Bank has built a differentiated branches network that provides tailored and relevant product offerings to the customers while ensuring cost efficiency of operations. The Banks MB branches offer micro-credit and other retail loans to its customers as well as deposits and payment services.
On the other hand, GB branches focus on garnering deposits. The Bank has adopted the strategy to target the top 100 locations that can facilitate deposit mobilisation to expand its GB branches network.
As of March 31, 2024, the Bank was operating its MSME (Retail Assets) loans, housing loans and CV & CE loan verticals across 86, 56 and 44 branches respectively. The existing branch network provides significant cross-sell opportunities as well as cater to diversified clientele base. The Bank has witnessed a healthy growth during FY 2023-24 with total assets growing by 25% to Rs. 23,902.68 crore. The Banks positive growth can be attributed to its robust expansion and diversified services. Utkarsh SFBLs gross loan portfolio and deposits grew by 31% and 27% respectively during FY 2023-24 and stood at Rs.18,299.28 crore and Rs.17,472.60 crore respectively as on March 31, 2024.
Liabilities – Deposits
The Bank strategises to focus on the top-100 deposits centres of the country, primarily in the metropolitan and urban centres. The Bank offers diversified service suite at competitive rates targeting primarily the retail customers from all segments, especially senior citizens, middle-class individuals, self-employed and salaried individuals.
Deposit mobilisation from retail customers remain the most stable source of funding to the Bank and is keenly focused by the management for a healthy and granular deposits profile. The Banks total retail term deposit base grew by 42.9% in FY 2023-24 to H7,968.41 crore as of March 31, 2024 from Rs. 5,575.13 crore as on March 31, 2023 which shows steady growth in Banks franchise. Retail term deposits has been a key driver for the Banks deposits growth in FY 2023-24. The Bank opened 25 General Banking (GB) branches during FY 2023-24, taking the Banks total GB branches to 276 spread across 26 states / UTs of the country as of March 31, 2024. The Bank offers deposits products from all 888 banking branches of the Bank. USFBLs branch network is also complemented by 320 ATMs as on March 31, 2024 and 619 Micro ATMs which provide cost-efficient systems of offering basic banking facilities such as cash deposit, cash withdrawal, and green pin generation among others. The Bank is consistently strengthening its digital and fintech presence, both directly as well as through partnerships. The Bank has also enabled instant savings and term deposit account opening through video KYC through its website . The Bank has partnered with a fintech company to provide term deposit products to the established clientele base of the fintech platform. Furthermore, the Bank has launched inter operable card-less cash withdrawal (ICCW) to enable customers to transact or withdraw funds without card on ICCW enabled ATMs. The Bank is also on the Aadhaar Enabled Payment System (AEPS), both as an Issuer and acquirer, allowing convenient cash withdrawals and offering accessibility of micro-ATM network for routine banking transactions in rural and semi-urban areas.
The Banks CASA deposits grew by 25.09% in FY 2023-24 to Rs. 3,582.31 crore as of March 31, 2024 from Rs. 2,863.74 crore as of March 31, 2023. The growth in CASA deposits was impacted by hardened interest rate scenario because of which depositors would have preferred term deposits and other fixed income investments over CASA deposits. Overall, the Bank has been focusing on building the share of CASA plus retail term deposits continuously, the share of CASA plus retail term deposits increased to 66.11% of total deposits of the Bank as of March 31, 2024, from 61.55% of total deposits as on March 31, 2023.
The Bank is primarily focusing on building granular deposits profile, reducing overall bulk deposits and limiting reliance on the top 20 depositors. As a result, the share of bulk deposits declined from 38% to 34% and share of top-20 depositors declined from 21% to 18%. USFBL is also aiming to diversify its institutional deposit profile by acquiring and strengthening relationships in the Government and Institutional Business (GIB) segment. With the objective of growing the CASA Deposits from Institutional Clients, the Bank has launched various products and solutions which include SmartPay -White label Collection Solution, e-NACH or e-Mandate Solution in addition to strengthening the Corporate Internet Banking Channel. The Bank was registered with SEBI as Banker to Issue and Self Certified Syndicate Bank (SCSB) and launched the facility of Application Supported by Blocked Amount (ASBA) for retail and institutional clients which enhances Banks product offering for the customer.
Geographically well diversified mix of deposits
As a strategy to build diversified deposits profile, the Bank has been continuously expanding its franchise and presence. As on March 31, 2024, the Bank has established its presence in 22 states and 4 UTs. The Banks deposits are fairly well diversified across states and UTs, with no state accounting for more than 20% of the Banks total deposits as on March 31, 2024.
Geographical Split of Deposits
States |
% Share in Total Deposit | Total Banking Outlets |
| Andhra Pradesh | 0.2% | 3 |
| Assam | 0.7% | 2 |
| Bihar | 4.9% | 214 |
| Chandigarh | 1.5% | 3 |
| Chhattisgarh | 0.9% | 19 |
| Goa | 0.1% | 2 |
| Gujarat | 4.2% | 15 |
| Haryana | 7.9% | 34 |
| Himachal Pradesh | 1.9% | 2 |
| Jammu & Kashmir | 0.1% | 1 |
| Jharkhand | 5.0% | 79 |
| Karnataka | 1.5% | 9 |
| Kerala | 0.8% | 4 |
| Madhya Pradesh | 2.3% | 38 |
| Maharashtra | 16.1% | 75 |
| Meghalaya | 0.0% | 1 |
| NCT of Delhi | 11.8% | 31 |
| Odisha | 1.6% | 85 |
| Puducherry | 0.3% | 1 |
| Punjab | 5.4% | 9 |
| Rajasthan | 2.1% | 26 |
| Tamil Nadu | 2.0% | 10 |
| Telangana | 0.9% | 4 |
| Uttar Pradesh | 17.8% | 182 |
| Uttarakhand | 6.0% | 23 |
| West Bengal | 4.1% | 16 |
Total |
100% | 888 |
Customer services and digitalisation
We have been constantly upgrading our technology-driven process and system, with an aim to provide superior customer experience. In view of achieving a strong technological infrastructure base, the Bank has focused on building a strong technological infrastructure with high availability and a robust architectural foundation for overall deposit growth. It is the prime objective of the Bank to enhance customer experience with digital channels such as debit cards, POS, ATMs, internet banking, mobile banking and a well-served customer care Call Centre, along with a consistently expanding branch network. In servicing its customers with a differentiated banking experience, USFBL offers the under-mentioned digital solutions:-
Internet Banking and Mobile Banking: Bank offers advanced, secure and robust applications to the customers that streamlines operations.
Digi On Boarding: In order to digitise customer acquisition, our Bank had launched tablet-based account opening system.
Utkarsh UPI Application: Utkarsh UPI application includes two-factor authentication along with SIM and device binding that enhances security and eases convenience during digital payments
Fintech: The Bank is entering into strategic partnerships with fintech companies to bolster digital initiatives
UPILite:USFBLlaunchedUPILite,allowingtransaction upto Rs. 200, through single click payment system without any UPI Pin. This initiative offers superior user experience with faster real-time settlement
e-KYC E-Sign: Utkarsh SFBL has started E-Sign and E-KYC to facilitate faster and flexible process, reducing turnaround time with its paperless processes
Video KYC: Implementation of V-KYC process for Liability and Assets vertical
RuPay Contactless International Debit Card:
Launched three new variants of RuPay Debit Card with contactless and International Transaction functionality.
Utkarsh Vyapar: It is a complete Digital Store for merchants powered by Getepay. Utkarsh Vyapar is a comprehensive merchant payment solution from Utkarsh SFBL. This offers the merchants an opportunity to grow their business through digital solutions.
Aadhaar Enabled Payment System-AePS: Designed to provide a seamless and secure banking experience to millions of Bank customers across India. AePS is a biometric-based payment system that leverages the Aadhaar authentication framework to enable secure, real-time financial transactions. This technology allows individuals to access various banking and financial services using their Aadhaar number and biometric authentication, ensuring financial inclusion for all.
ASSETS – LENDING PRODUCTS
USFBL focuses on building retail loan books through micro-banking loans through Joint Liability Group (JLG) loans, micro-banking business loans, MSME (retail assets) loans, housing loans, commercial vehicle loans & construction equipment loans. The Banks gross loan portfolio grew by 31.11% from last year and stood at Rs.18,299.28 crore at the end of the reported year.
Banks loan growth is backed by a healthy growth in Banks micro-banking lending, which grew by 22.76% during FY 2023-24 to Rs.11,312.86 crore as on March 31, 2024. Other retail loans and wholesale lending businesses, together grew by 47% during FY 2023-24, albeit on a moderate base.
Micro-Banking Lending
Commencing its operations from September 2009 from Uttar Pradesh, USFBL takes pride in establishing an impressive record in the microbanking sector. The rural and semi-urban areas are relatively underserved sections of the society; the Banks marked presence in those areas contributed significantly to the growth of USFBL. The Bank offers Joint Liability Group (JLG) loans, micro banking business loans to matured JLG clients and PM SVANidhi loans to the street vendors. The Bank offers loans to empower underprivileged or low-income individuals who have limited access to financial services. These loans have enabled borrowers to pursue income-generating activities as well as facilitate some to embark on their entrepreneurial journey. The Bank aims to deliver affordable and accessible banking services to encourage them to achieve their dreams and aspirations. At the same time, the presence of JLG structure with a strong and frequent physical connect with borrowers, leads to a healthy credit discipline among the borrowers. These characteristics make micro-banking business an economically viable proposition over the cycles while also bringing the much-needed social impact, therefore proving it a real double bottom line for the business.
The growth can be primarily attributed to robust new customer acquisition and healthy subsequent loan cycle disbursements. The Bank is expected to maintain sustained growth in the microbanking loan sector owing to marked presence in relatively underserved geographies. Furthermore, digital onboarding for loan as well as savings account opening, E-sign, E-KYC, digital collections through customer specific QR code, micro-ATM, video PD and other offerings will serve as a backbone in building a strong & sustainable franchise with cost efficiency.
Furthermore, while the USFBLs core geography of Bihar and Uttar Pradesh remain the mainstay of Banks micro-banking portfolio, the Bank has been increasing its micro-banking footprints to newer states. As on March 31, 2024, the Banks micro-banking loan portfolio is spread across 13 States & UTs covering a client base of more than 30 lakh. The Banks loan portfolio is spread across 166 districts and serving through 612 micro-banking outlets.
Presence across 13 States / UTs
The Bank provides cashless disbursement in the micro- banking segment and disburses all the loans in the bank accounts of the customer. Furthermore, the Bank is continuously stepping towards increasing digital collections primarily through customer specific QR code and Bill desk payment gateway. The Bank is expecting increase in cashless collections going forward. The increase in penetration of cashless collection is likely to reduce operational risk pertaining to physical cash as well as improve the efficiency of the field staff, apart from benefit of cashless mode of payment to the underlying client. The onboarding of micro-banking clients are completed through E-KYC and E-sign processes that optimises efficiency and facilitate swift on-boarding process while providing superior customer experience.
The Bank offers following products under micro-banking lending:
Amount in Rs. Cr
Break up of Micro-Banking Portfolio |
Mar-23 | Mar-24 |
| Joint Liability Group Loans | RS.8,880 | RS.10,634 |
| Micro-Banking Business | RS.332 | RS.671 |
| Loan | ||
| PM SVANidhi | RS.4 | RS. 7 |
Total Micro-Banking |
RS.9,216 | RS.11,313 |
Portfolio |
Joint Liability Group (JLG) Loans
The Bank offers JLG loan to its clients for income generating activities on the strength of group-guarantee loan model which enables the individuals to take loans without any collateral or security. The borrowers are encouraged to promote credit discipline through mutual support within the group, encourage prudent financial conduct among the group, and ensure timely repayment of their loans. The primary target customer segment are women in households, engaged in income-generating activities or intending to begin a new income-generating activity on their own. The methodology includes either fortnightly or bi-fortnightly centre meetings and ‘stepped-up loans that can grow each time a client takes a loan and successfully repays it, thereby demonstrating good credit discipline and the need for higher amount of loan. As of March 31, 2024, all of the Banks customers in the JLG loans segment were female, with loans ranging between Rs. 6,000 and Rs.1,00,000 for income generating activities.
Micro Banking Business Loans (MBBL)
With an objective to meet the increasing funding requirement of customers who have completed multiple loan cycles with the Bank, the Bank offers MBBL loans to its existing matured JLG borrowers. The Banks MBBL loan portfolio doubled, albeit on a smaller base, during FY 2023-24 to Rs. 671 crore, as of March 31, 2024. Given the Bank has long track record in JLG lending and has a large number of JLG borrowers, the Bank expects significant growth potential in MBBL lending which is also reflected in credit growth registered by the Bank in FY 2023-24. Furthermore, as the Bank provides MBBL loans only to its existing borrowers with good track record, the asset quality in MBBL loan segment remain very healthy with Gross NPAs of <1% as on March 31, 2024.
PM SVANidhi Loan Scheme
With the aim to restore the livelihood of street vendors, the Ministry of Housing and Urban Affairs had launched Prime Ministers Street Vendors Atma Nirbhar Nidhi (PM SVANidhi) loan scheme.
The Bank recorded an improvement in asset quality of micro banking loans as Gross NPAs declined from 4.1% as on March 2023 to 2.9% as on March 2024.
Saving and Pension, Health Insurance Products for Micro-Banking Clients
As of March 31, 2024, the Bank has opened more than 19.5 lakh BSBDA Savings Bank Accounts. These accounts were introduced to provide suitable saving and finance products to borrowers and develop the habit of saving among the micro finance borrowers. The Bank offers Atal Pension Yojana (APY) to savings bank account holders in the age group of 18 to 40 years. The Bank acts as a Point of Presence and aggregator and enrols subscribers through architecture of the National Pension System. This product promotes savings amongst micro finance borrowers as well as provide security post-retirement age. Furthermore, the Bank also offers Hospicash (a health insurance product) to its customers which not only provides health insurance cover for hospitalisation expenses but also work as wage loss cover for micro banking customers due to hospitalisation.
Other Retail & Wholesale Lending Book
The Bank has always been focused to build a diversified retail loan book, providing different services to the consumers. Over the years, the Bank has steadily built a varied product portfolio, encompassing MSME (retail assets), housing, CV & CE loans and other retail loan products. Banks core geography, Bihar, UP and other states, offers significant growth potential for these products as well.
MSME (Retail Assets) loans
The Bank offers secured business loans, unsecured business loans, Micro LAP and overdraft products to MSMEs. The Bank has activated 86 branches for its MSME loan product, enabling its loan book grow by 66.68% to reach H2,556.99 crore in FY 2023-24 from H1,534.09 crore in FY 2022-23. The robust expansion and marked presence in underserved sections of the society contributed to the growth in MSME loan book. The segment records over 95% secured lending with average ticket size of loan book at H25-H35 lakh.
Housing loans
Housing finance segment continues to be a significant contributor to the growth trajectory in our country. USFBL focuses on providing affordable housing loans to self-employed and salaried individuals, targeting formal, informal and semi-formal income segments. As of March 31, 2024, the Bank offers housing loans through 56 branches.
The housing loan portfolio witnessed an increase from H519.25 crore to H676.59 crore during FY 2023-24, recording a growth of 30%. This growth can be attributed to the Banks consistent focus on building the housing loan book, expanding network and a relatively small base of the Banks housing loan portfolio.
Commercial Vehicle (CV) and Construction Equipment (CE) Loans
CV & CE loans has been one of the key retail loan products for Banks and NBFCs in India. USFBL offers loan for both new and used commercial vehicles and for construction equipment. However, used vehicle contributes to less than 5% of the total CV & CE loan book as on March 31, 2024. The Bank caters primarily towards small fleet operators and in the core geographies of Bihar, Jharkhand and UP which are relatively underserved. While these geographies offer good growth potential, Chandigarh, Delhi NCR, Rajasthan and West Bengal are also proving to be lucrative markets for the Bank. With CV & CE loans being provided from 44 branches, the Banks CV & CE loan portfolio have grown from Rs. 560.36 crore in FY 2022-23 to Rs. 944.44 crore in FY 2023-24.
Business Correspondent (BC)
In FY 2017-18, USFBL started the Business Correspondent (BC) Model to foray in untapped geographies and diversify the loan book. The BC partners acquire, manage and service customers as an extended arm of the Bank, following all the policies and procedures given in the internal governance structure. The Bank maintains BC partnerships for JLG, Small Business Loans, Personal Loans and Supply Chain Finance. BC partners manages a total loan book of Rs. 721.07 crore, attributing to 3.94% of the Gross Loan Portfolio as of March 31, 2024.
Wholesale Lending (WSL)
USFBLs wholesale loan portfolio grew by 21.7% during FY 2023-24 to Rs.1,882.41 crore from Rs.1,546.81 crore recorded in the previous financial year as on March 31, 2023 and accounted for 10.3% of total loan portfolio of the Bank (declined from 11.1% as on Mar-23). As a business strategy, the Bank intends to keep WSL loan portfolio share in total portfolio largely at similar levels of FY 2023-24. Banks WSL loan portfolio comprised Financial Institution (WSL FI) lending and business banking group loans to small corporates
Amount in Rs. crores
Break up of Wholesale Loan Portfolio |
Mar-23 | Mar-24 |
| WSL FI Lending | RS.1,179 | RS.1,287 |
| Business Banking Group (BBG) | RS. 368 | RS.596 |
Total WSL Portfolio |
Rs.1,547 | Rs.1,882 |
WSL FI Lending
Commencing the operations from FY 2017-18, the Bank started WSL FI lending with the aim to diversify the loan book and expand geographic footprint by leveraging the Banks rich knowledge and expertise in the retail lending space in India. USFBL provides loan facilities to Non-Banking Finance Companies (NBFCs), Housing Finance Companies (HFCs), NBFC-MFIs and other entities engaged in financial services activity. The loans are offered to meet their on-lending funding requirement.
The Banks WSL FI loan book comprised loans to entities rated by external credit rating agencies at A-rating category or higher (69% of WSL FI loan book) and balance 31% is loan towards companies rated in BBB rating category.
Business Banking Group (BBG) Lending
USFBL provides short-term and long-term loan facilities to Small and Medium Enterprises (SMEs) and other entities engaged in manufacturing, services or trading activity. The loans are offered to meet their working capital and business expansion requirements. Non-fund based products in the form of Bank Guarantee is also offered to the customers under the Wholesale lending. The Bank provides loans primarily with a ticket size of Rs.1 - Rs.10 crore, mostly secured against collateral of immovable property.
Business Strengths & Strategies
Deep understanding of microfinance segment and strong presence in rural and semi-urban areas
USFBL leverages the legacy and the experience of the promoter company UCL to cater to the financing needs of the unbanked and the under banked sections of the society. To serve the deserved has been infused into USFBLs core vision. Our deep understanding of the micro finance business along with an expansive network in relatively less explored rural and semi urban locations provide healthy growth opportunities.
Continue diversifying the retail asset portfolio
The primary focus of the Bank is to keep diversifying the asset portfolio to cater to the existing customers from the unserved and underserved sections of society. The Bank intends to offer a bouquet of retail loan products to cater to the evolving financing needs of its customers. As a result of healthy growth in other retail loan portfolio, the share of micro banking loans declined in Banks gross loan portfolio from 66% as Mar-23 to 62% as on Mar-24, the trend of decline in share of micro-banking portfolio is expected to continue over short to medium term.
Expanding deposits base with focus on retail deposits
The Bank offers a variety of demand and time deposit services. Our product suite includes a range of deposit products including savings accounts, recurring and fixed deposits, which are available at competitive rates, predominantly targeting retail customers across various segments. The Bank has been consistently focusing on improving granularity of its deposits and improving share of CASA and retail term deposits. The Banks CASA and retail term deposits portfolio together stood at Rs.11,550.72 crore (66.11% of total deposits) as of March 31st 2024 increasing from Rs.8,438.87 crore (61.55% of total deposits) as of March 31, 2023.
Diversified distribution network with significant cross-selling opportunities; Leverage Banks extensive franchise and presence further
The Bank has an extensive physical network of 888 banking outlets across 22 states and 4 union territories, covering 262 districts in India as on March 31, 2024. Out of these 888 banking outlets, 556 are located in rural and semi-urban areas, aligning with USFBLs core vision of financial inclusion. The Bank has opened more than 200 branches during last two financial years – FY 2022-23 & FY 2023-24, providing services to a diversified clientele. Furthermore, the Bank has implemented new lead management system (LeMS), offering significant cross-sell opportunities.
Healthy growth with healthy financial and cost-efficient operational performance
The Bank provides products and services in a cost-effective manner; USFBLs cost-to-income ratio is one of the lowest among all SFBs. The Banks cost-efficient operations can be attributed to clearly articulated business strategy, as well as branch structure, our track record expertise, automated and digitised processes. During the year under review, USFBL maintained healthy operational performance validated by a 18.96% year-on-year growth in operating profits (before provisions) to reach Rs.997.27 crore compared to Rs.838.32 crore in FY 2022-23. The Bank also maintained healthy cost-income ratio of 56.4% during FY2023-24.
Focus on risk management and effective operations
The Bank prioritises risk management at the core of all operations. The Bank has established a robust and comprehensive credit assessment and risk management framework. The framework identifies, monitors and manages risks inherent in the operations, particularly in managing credit, market, liquidity, IT and operational risks. The Bank measures, monitors and implements risk parameters, including real-time monitoring of regulatory updates and trends in national and international markets; framing guidelines, policies and products in accordance with industry practices; defining admissible portfolio at risk for each product; and establishing an early warning system to provide signals for sector performance and limits on extending funds to a particular industry.
The Banks effective credit risk management is reflected through the control of portfolio quality indicators. The percentage of gross NPAs to Gross Advances was 2.51% while the percentage of net NPAs to Net Advances was 0.03% as on March 31, 2024. On the other hand, the Provision Coverage Ratio (PCR) was healthy at 98.92% as on March 31, 2024. Furthermore, the Banks efficient management team comprising of qualified and experienced professionals, possess deep knowledge of the industry, enables the Bank to navigate through different challenges and build a resilient and consistent franchise.
Revolutionising use of technology and varied digital offerings
The Bank leverages advanced, cost-effective technology to drive the operations of the Bank. USFBL intends to strategically invest in leveraging technology to optimise operations. The Bank also aims to reduce operating cost, increase efficiencies and encourage customers to migrate from an assisted model to a self-service delivery model. Thereby, the Bank aims to continue to invest in advanced technology to enhance customer experience and offer a range of bespoke financial products adhering to the financial requirements.
Business Technology Transformation project
Digital transformation has played a crucial role in the dynamic financial landscape, enabling customer-centricity. The Bank has set up a Transformation Management Office to act as centralised Project Management Office (PMO) to implement all strategic projects in a timebound manner while assessing progress with return on investment. The Bank has also partnered with one of the reputed consulting firms and has also created an internal team of select staff to be part of Transformation Management Office (TMO). The Bank strategies to diversify and increase retail asset portfolio and liabilities business, redefining customer journeys and optimises operations. The Bank is currently facilitating automation by implementing modern Loan Origination systems and updating the digital onboarding process and assisting journey through the internal development team. Furthermore, the Bank is adopting cloud computing to create a robust and scalable IT infrastructure. USFBL is also upgrading and replacing some of the key applications according to the latest technology standards.
Capital raising through Initial Public Offering (IPO) in July 2023
The Bank had launched its Initial Public Offering (IPO) in July 2023 and raised equity capital of Rs. 500 crore by issuing 20 crore equity shares at Rs.25 per share (including securities premium of Rs.15 per share). The Banks IPO was accepted well by the investors with overall subscription of 100 times. The IPO has enabled the Bank to meet one of the licensing conditions. As a result of IPO, promoter shareholding in the bank declined from 84.75% as on March 31, 2023 to 69.06% as on March 31, 2024. Capital raised through IPO coupled with accretion of profits resulted in increase of Capital plus reserves by 49% from Rs.2,000 crore as on March 31, 2023 to Rs. 2,973 crore as on March 31, 2024.
Banks public shareholding is fairly diversified with presence of institutional investors such as Mutual Funds, Life Insurance Companies and others. Furthermore, the Banks Promoter, Utkarsh CoreInvest Limited (UCL) has a number of institutional investors including British International Investment plc (formerly known as CDC Group PLC), International Finance Corporation, NMI Frontier Fund KS, SIDBI, HDFC Life Insurance Company Limited, HDFC Ergo General Insurance Company Limited, ICICI Prudential Life Insurance Company Limited and Faering Capital India Evolving Fund.
Financial inclusion and priority sector lending
The Reserve Bank of India (RBI) has mandated a higher priority sector lending requirement for SFBs at 75% vs. 40% for universal banks. Owing to the Banks legacy of serving under-banked population of the country and promoting financial inclusion, USFBL meets priority sector lending requirements comfortably while monetising surplus PSL portfolio through sale of Priority Sector Lending Certificate (PSLCs) or sale of surplus PSL portfolio through IBPC or portfolio sell-down. On overall basis, after netting of PSLC sale / IBPC, the Banks PSL achievement (basis quarterly average) stood at 86.78% during FY 2023-24, against the regulatory minimum requirement of 75%. On account of higher proportion of PSL as compared to the requirement of the RBI, the Bank has been able to sell the surplus PSL portfolio through Priority Sector Lending Certificate (PSLCs) to earn non-interest income for the Bank. During FY2023-24, the Bank earned PSLC income of H103.65 crore.
Furthermore, USFBL is comfortably placed on RBIs norms for SFBs to maintain loans with ticket size of up to Rs.25 lakh, to be not less than 50% of the Banks total loan portfolio. The Banks lending to the ticket size of less than Rs.25 lakh was at 72.2% of the gross loan portfolio as on March 31, 2024.
The Bank witnessed improvement in asset quality during FY2023-24. Banks Gross NPA reduced from 3.23% during FY 2022-23 to 2.51% as on March 31, 2024. Banks Net NPA decreased from 0.39% as on March 31, 2023 to 0.03% as on March 31, 2024. The Bank has strengthened collections team by adding more manpower as well as separate team for bucket wise and vertical wise collections. The Bank has also implemented EBIX collection application for better tracking of our collection efforts. These have strengthened Banks collection efforts and are likely to support asset quality & collection efficiency.
During FY2023-24, the Bank has strengthened its provision cover by creating additional floating provision for its micro-banking loan book to mitigate against any unforeseen events or risks for micro-banking business. As a policy, the Bank has created floating provision equal to 1.5% of its opening JLG loan book, that is, Rs.133 crore as of March 31, 2024. The Banks provisioning policy aims to build adequate provision cover in normal times to absorb and mitigate any unknown events or risks for micro-banking business. On an overall basis, the Bank had provision coverage ratio of 98.92% as of March 31, 2024, against 88.29% for FY 2022-23.
Financial performance
The Bank has reported strong financial performance during FY 2023-24 as reflected in healthy business growth, highest ever annual operating profit (pre-provision) of H997 crore and highest ever annual PAT of Rs.498 crore in FY 2023-24. Banks capital + reserves increased from Rs.2,000.32 crore as on March 31, 2023 to Rs.2,973.19 crore as on March 31, 2024.
(In Rs. crores)
Key Performance Indicators (KPIs) |
FY 2023-24 | FY 2022-23 |
OPERATIONS |
||
| Banking Outlets | 888 | 830 |
| Gross Loan Portfolio (Rs. in crores) | 18,299 | 13,957 |
| Secured Advances as % of Gross Loan Portfolio | 34.34% | 31.06% |
| Total Deposits (Rs. in crores) | 17,473 | 13,710 |
| CASA Ratio (%) | 20.50% | 20.89% |
| CASA + Retail Term Deposits (as % of Total Deposits) (%) | 66.11% | 61.55% |
CAPITAL |
||
| Capital + Reserves (i.e. Net Worth) (Rs. in crores) | 2,973 | 2,000 |
| Total Capital Ratio (CRAR) (%)* | 22.57% | 20.64% |
| Tier 1 Capital Ratio (%)* | 20.95% | 18.25% |
| Cost of Deposits (%) | 7.72% | 6.86% |
| Cost of Funds (%) | 7.80% | 7.08% |
ASSET QUALITY |
||
| Gross NPA (%) | 2.51% | 3.23% |
| SMA 1 % | 0.97% | 0.77% |
| SMA 2 % | 0.96% | 0.70% |
| Provision Coverage Ratio (excl. Technical Write-offs) (%) | 98.92% | 88.29% |
| Standard Restructured Advances (%) | 0.06% | 0.22% |
| Net NPA (%) | 0.03% | 0.39% |
PROFITABILITY |
||
| Net Profit (Rs. in crores) | 498 | 405 |
| Yield on Advances (%) (basis Gross Loan Portfolio) | 19.01% | 19.18% |
| Net Interest Margin (%) | 9.44% | 9.71% |
| Credit Cost Ratio (%) | 2.20% | 2.53% |
| Operating Expenses to Total Average Assets (%) | 6.34% | 6.00% |
| Cost to Income Ratio (%) | 56.38% | 54.15% |
| Return on Total Average Assets (%) | 2.45% | 2.45% |
| Return on Average Equity (%) | 19.54% | 22.91% |
OTHERS |
||
| Basic EPS | 4.79 | 4.52 |
| Net Asset Value per Equity Share | 27.04 | 22.33 |
Ratios basis monthly average balances
*Post effect of the proposed dividend for FY 2023-24, which has impacted CRAR & Tier 1 capital by ~43 bps
Income & Expenses
The Net interest income (NII) of the Bank grew by 23.33% from Rs.1,529.03 crore in FY 2022-23 to Rs.1,885.80 crore in FY 2023-24. The growth in NII in FY 2023-24 was supported by healthy growth in business during FY 2023-24. Banks NIMs declined marginally from 9.71% in FY 2022-23 to 9.44% in FY 2023-24 on account elevated interest rate environment and declining share of high yielding micro-banking loan portfolio.
The Other income of the Bank witnessed a growth of 33.78% from Rs.299.31 crore in FY 2022-23 to Rs. 400.40 crore in FY 2023-24 supported by healthy growth in processing fees, income from sale of PSLCs, higher income from cross-selling of third-party products, fee-based & transaction income and recovery from written-off accounts.
The operating expenses of the Bank increased by 30.19% during FY 2023-24 primarily on account significant expansion in franchise (>200 new branches during FY 2022-23 & FY 2023-24). Cost-to-income ratio of the Bank remains comfortable at 56.38% in FY 2023-24.
Pre-Provisioning Operating Profit (PPoP) of the Bank grew by 18.96% year-on-year to Rs. 997.27 crore in FY 2023-24 as compared to Rs. 838.32 crore in FY 2022-23.
Overall credit cost was 2.2% for FY 2023-24. Credit cost included additional floating provision created during FY 2023-24, excluding floating provision credit cost was ~1.8% for FY 2023-24.
Profit after Tax & Dividend
Banks profit after tax increased by 23% in FY 2023-24 to Rs.498 crore in FY 2023-24 vs. Rs.405 crore in FY 2022-23. The improvement in PAT is also on account of decline in credit cost, with improvement in asset quality, during FY 2023-24 vs. FY 2022-23. The Return on Average Assets (ROAA) was healthy at 2.45% during FY 2023-24 and return on equity was 19.54% in FY 2023-24.
The Board of Directors (BoD), at its meeting held on April 26, 2024, has proposed a dividend of Rs.0.50 per share for the year ended March 31, 2024 subject to approval of the shareholders at the ensuing Annual General Meeting.
Credit-Deposits Ratio
Banks Credit-Deposits (CD) ratio declined from 95.3% as on Mar-23 to 93.7% as on Mar-24 and the Bank targets to reduce CD ratio further.
NPA
The Banks Gross NPAs declined from 3.23% as on March 31, 2023 to 2.51% as of March 31, 2024. The Net NPAs improved from 0.39% as of March 31, 2023 to 0.03% as of March 31, 2024. The Bank is holding provisional coverage of 98.92% as of March 31, 2024.
CRAR
The Bank raised equity capital of Rs.500 crore through its IPO in July 2023 by issuing 20 crore equity shares at H25 per share (including securities premium of Rs.15 per share). As a result of capital raised through IPO exercise and with accretion of profits, Banks capital plus reserves increased by 49% from Rs.2,000 crore as on March 31, 2023 to Rs.2,973 crore as on March 31, 2024 and provides capital to meet growth plans of the Bank.
The Banks Capital to Risk weighted Asset Ratio (CRAR) stood at 22.57% as on March 31, 2024 compared to 20.64% as on March 31, 2023. Further, the Tier-I CRAR of the Bank stood at 20.95% as of March 31, 2024, compared to 18.25% as of March 31, 2023. Effect of the proposed dividend of H0.50 per share for FY 2023-24 has been reckoned in determining capital funds in the computation of capital adequacy ratios as at March 31, 2024.
Particulars |
2023-24 | 2022-23 |
| CRAR | 22.57% | 20.64% |
| Tier-I | 20.95% | 18.25% |
| Tier-II | 1.62% | 2.39% |
Credit ratings
The Banks certificate of deposits programme is rated, at the highest credit rating grade, [ICRA] A1+ by ICRA Limited. As on March 31, 2024, the Banks long-term subordinated bonds were rated at A+ (Stable) rating by ICRA and CARE Ratings. Banks Long term credit rating were upgraded by one notch from A to A+ in FY 2023-24. The rating upgrade reflects improvement in asset quality and profitability profile of the Bank.
Rating Agency |
Facilities |
Credit rating |
ICRA Limited |
Certificate of Deposit |
[ICRA] A1+ |
| Subordinated Debt Programme | [ICRA] A+ (Stable) | |
| CARE Ratings | Long Term Tier II Bonds | CARE A+ (Stable) |
OUTLOOK
The reported year has been an excellent year for the Bank in terms of financial performance. The Bank has reported highest ever annual operating profit (pre-provisions) of H997 crore in FY 2023-24. Not only the Banks loan portfolio and deposits registered healthy business growth, the Bank also witnessed improvement in asset quality. The Bank believes that there are significant growth opportunities available in the core operational geographies, owing to robust growth potential and relatively low financial penetration. USFBL aims to strengthen its franchise and improve its presence by exploring new geographies and offering relevant and suitable product offerings. While FY 2024-25 is expected to pose challenge with respect to elevated interest rate scenario and tighter liquidity environment, the Bank expects to maintain healthy business growth and profitability at healthy levels in FY 2024-25.
USFBL strives to be a retail-focused Bank, providing financial services to mass markets. The Bank intends to develop and offer a comprehensive suite of assets and liabilities products that will acquire new customers and strengthen the relationship with existing customers. USFBL is planning to augment the liabilities franchise further by expanding franchise, deepening relationship and targeting the top 100 districts of the country in terms of overall deposits, including tapping of metropolitan and urban areas by promoting savings accounts and other deposit products.
Material Orders passed by the Regulators
There were no significant material orders passed by the Regulators, Court, Tribunal or any other legal institution during FY 2023-24, that can impact the growth of the organisation. However, during the FY 2023-24, Securities and Exchange Board of India (SEBI) vide their order dated September 20, 2023, imposed a monetary penalty of Rs.1,00,000/- on the Bank in the matter of NCDs of Rs. 25 crore issue to Karvy Capital Limited. Also, vide SEBIs settlement order dated April 10, 2024, the Bank completed settlement proceedings with respect to LODR reporting non-compliance that took place prior to 2021 on payment of settlement amount of Rs. 1,24,23,600/- to SEBI on March 27, 2024
Internal Ombudsman (IO)
The Reserve Bank of India (RBI) institutionalised the Internal Ombudsman to strengthen the Internal Grievance redressal system of the Banks. Thus, IO plays a pivotal role in ensuring fair and impartial resolution of the grievances in a timely manner, minimising escalation of customers grievances.
As per recently released "Master Direction – Reserve Bank of India (Internal Ombudsman for regulated entities) Directions, 2023", the RBI has undertaken review of Internal Ombudsman schemes in line with the integration of previous three RBI Ombudsman Schemes, with the objective to improve customer service standards in regulated entities. The framework reaffirms that the IO mechanism should work as envisaged and it shall be positioned as an independent, apex level authority on consumer grievance redressal within the regulated entities.
Furthermore, the IO has the right to access the Banks records relating to the complaints received, seek detailed comments from the Bank with regard to the complaints, hold meetings with the functionaries and departments concerned while examining the complaint for redress. The Bank will furnish all records and documents sought by the IO to perform the process efficiently. Furthermore, in its endeavour to achieve fair, transparent and customer centric grievances redressal system, the Bank has synchronised its Internal Ombudsman mechanism with the Customer Relationship Management System.
Grievances closed by IO in FY 2023-24:
No. of grievance received by the Bank during 2023-24 |
No. of cases rejected by Bank partly/fully during 2023-24 | No. of cases reviewed by IO during 2023-24 | No. of grievances closed by IO during 2023-24 | No. of grievances outstanding as on March 31, 2024 |
| 7,166 | 242 | 242 | 242 | 0 |
Disposal of grievances by Bank during FY 2023-24:
No. of grievances at the beginning of 2023-24 |
No. of grievances received by the Bank during 2023-24 | No. of grievances disposed of by the Bank in 2023-24 | No. of grievances outstanding as on March 31, 2024 |
| 238 | 7,166 | 7,332 | 72 |
Credit function
The Credit Policy document seeks to provide information about the credit activities of the Bank. The Credit Policy of the Bank has been prepared with the broad objectives of adhering to the guidelines and policies enunciated by the RBI and other regulatory authorities with an endeavour to build a diversified asset portfolio and maintain a healthy mix across different categories of borrowers based on businesses, sectors, rating categories, products, geographies etc. The policy also elaborates on financial products for Corporates, MSMEs, Rural, Agriculture and Micro Banking sectors. The Credit Department has different verticals such as Retail, Wholesale, Credit Administration (CAD), Wheels, MBBL and Credit Support. The major objectives of the credit department include:
Developing Credit and Risk management strategies for loans acquisition ensuring sustainable business growth & healthy portfolio
Adopting a forward-looking and market responsive approach within the framework of policy guidelines, exploring new profitable areas of lending
Embracing prudent monitoring framework on portfolio behaviour and asset quality
Leveraging advanced technological tools for various credit appraisal and financial analysis and scorecard-based underwriting for retail lending
Fulfilling responsible lending objectives
Lending for sustenance of profitability, implying need to nurture superior credit appraisal skills through specialisation and competence building
Adopting various smart technological tools such as "Perfious" tool for financial and banking analysis, "SaveRisk" and "Probe" tools for analysis of Companies financials and other critical parameters history, "Hunter & Sherlock" tools for borrowers adverse history enabling prudent due diligence, key lending decisions and optimisation
Ensuring KYC norms are strictly followed and the borrowers are carefully selected after proper pre sanction scrutiny and monitoring the account constantly to maintain its quality
Following strong credit risk management practices and higher standards of due diligence to protect and improve asset quality at both transaction and portfolio levels.
Monitoring accounts with arrears and Special Mention Accounts (SMAs) to ensure that the accounts do not slip to Non-Performing Assets (NPA)
Collection mechanism
The Bank has an in-house team for collections. It comprises of separate team for Mortgages, Wheels and Unsecured. Each of these verticals has zonal and regional teams to monitor over 175 feet on street (FOS) and control delinquencies. The field teams are well trained in the Banks policies and Code of Conduct. The Banks outsourced call centre calls and reminds customers in case of over-dues other than the JLG lending business. The Bank also has an in-house legal team for the recovery of dues. From tele-calling, customer servicing, legal notices, repossession to auction of assets, the Bank follows a complete cycle. The Bank has recently implemented a Collection Management System which allows the FOS and regional teams to access their allocated customers on their App and upload meeting details on the App itself.
Treasury
The Bank conducts its treasury business and operations from its Treasury office, located in Mumbai. The Treasury of the Bank operates on the principle of independent functioning and reporting amongst Dealing Desk, Settlement and Operations Team and Risk to ensure operational efficiency. The Treasury monitors ALM (Asset and Liability Management) and LCR (Liquidity Coverage Ratio), ensuring adequate liquidity in the system to meet payment obligations and liquidity requirements arising out of asset growth through participation in money and security markets. The Treasury ensures compliance with various Regulatory and Management guidelines regarding liquidity management and investment activities that inter alia include Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR).
The Treasury is guided by the Board-approved Comprehensive Investment Policy and other Management Policies, optimising the yields of the investment portfolio and controlling the overall cost of funds for the Bank through an optimal mix of deposits.
The Treasury incorporates robust Business Continuity Plans (BCP) and periodically conducts business from alternate locations as part of BCP.
Risk Management
Risk Management plays a crucial role in the Banks strategic planning, ensuring proper collaboration and non-biased decision making. The ability of the risk management to manage multiple risk types while preparing for new regulations and complying with current ones, makes it a valuable addition to financial institutions. Risks can be primarily classified into Credit Risk, Market and Liquidity Risk, Operational Risk, IT and Cyber Security Risk and other risks. The Bank has adopted a structured approach for risk management to identify, assess, monitor, mitigate and manage risks through the effective use of people, processes, data and technology. The Bank ensures that the leading officials are suitably qualified, experienced and well trained. The risk management philosophy and approach are designed to protect depositors, customers, employees and other stakeholders interests and protect the Banks reputation. As part of prudent Risk Management, the employees of the Bank are being appraised at regular intervals about the dynamic risks associated within the Bank. The various modes by which Risk culture is promoted in the Bank are mandatory induction, refresher and weekly training / Risk related workshops. The Bank has constituted a Risk Management Committee of the Board (RMCB) to supervise the entire risk management framework of the Bank. RMC meets on a periodic basis to discuss and mitigate risks. Additionally, the Bank also has various Senior Management Level Risk Committees, such as Credit Risk Management Committee (CRMC), Operational Risk Management Committee (ORMC), Asset Liability and Market Risk Committee (ALCO) and Information Security related Committee. Furthermore, the Internal Capital Adequacy Assessment Process (ICAAP) of the Bank assesses all the significant risks associated with various businesses.
Bank has appointed a senior officer as Chief Risk Officer (CRO) of the Bank, who is responsible for managing various risk verticals such as Credit Risk, Market and Liquidity Risk, Operational Risk, Information Security Risk, and other Risks under the aegis of the Board approved risk management policies. The CRO interacts regularly with the RMCB Members and updates the committee about various developments and issues.
Risk |
Impact |
Mitigants |
| Credit Risk | The Bank defines credit risk as the risk of loss associated with a borrower or counterparty default (failure to meet obligations in accordance with agreed- upon terms). Credit risk can adversely impact both the Banks revenue and margins. | Credit Risk Management Committee (CRMC) oversees and reviews the Credit Risk. It is responsible for monitoring prudential limits on large credit exposures and portfolio concentration, portfolio management, loan review mechanism, risk concentration, monitoring and evaluation, provisioning, regulatory and other issues around it. |
| The Bank has laid down various limits through Credit Risk policies to control the magnitude of credit risk. Portfolio review and monitoring are carried out through Early Warning Framework and Close monitoring of High Value Customers. | ||
| Credit Risk Management Committee follows the following approach: | ||
Adherence to the guidelines and policies related to credit, credit risk and NPA management as issued by the Reserve Bank of India (RBI) from time to time |
||
Establishing a governance framework to establish an effective oversight, segregation of duties, monitoring and management of Credit Risk in the Bank |
||
Setting up and monitoring of the credit and credit risk appetite and limits and taking suitable action in case of any report of breaches Setting the framework for identification and monitoring of Early warning signals and Red flag accounts |
||
Enhance use of structured internal and external data for taking informed decisions and usage of score cards for various decisioning |
||
Undertaking stress testing and take suitable action based on results |
||
Monitoring various global and domestic developments, analysing industry trends and issuing guidelines and directions |
||
Market Risk |
Risks arising from the movement in market prices might impact the revenue generation ability of the Bank. | Both the investment committee and the asset-liability management committee of the Bank are tasked with supervision of the investment and market risk. They approve the framework for market risk and its thresholds. The mid-office prepares and analyses daily reports on various activities of the Banks treasury and monitors the various limits including stop losses. |
| A comprehensive market and liquidity risk dashboard is circulated to Senior Management at monthly intervals. The dashboard comprises of all the relevant information related to investment portfolio, liquidity position, depositors and borrowing, enabling improved and informed decision- making by the Senior Management. | ||
Operational risk |
Inadequate or failed internal processes, people and systems might have an adverse impact on the profitability of the business. | The Operational Risk Management Committee (ORMC) is responsible for the implementation of the Banks Operational Risk Management framework. All the new products and processes, as well as changes in the existing products and processes are subjected to risk evaluation by the ORM team. |
| Considering the enhanced risk in outsourcing outlined by the regulator, Risk Management Function has been augmented with a structured Third-party Risk Management (TPRM) framework to oversee and review the risks associated with outsourcing of Third-party onboarding and Risk Assessment of Third party classified under outsourcing of Information Technology and Financial services. | ||
| The Bank also has a well established Business Continuity Plan (BCP) framework which has been put in place to ensure continuity of service to its large customer base. The effectiveness of the approved Business Continuity Plan (BCP) framework is tested for all identified critical units to ensure readiness to meet various contingency scenarios and take corrective actions wherever any issues are observed. The Bank has smoothly managed to run its operations by adapting to various continuity plans. | ||
| Bank has enhanced the BCP standards to ISO 22301 in the FY 2023-24. | ||
Fraud Risk |
Fraud risks comprise cyber threats, scam, processing errors and document mishandling, among others, affecting the goodwill and the revenue generation of the Bank. | The Bank has set up a Fraud Risk Management (FRM) department as an independent group in the Bank to enable fraud prevention, monitoring, investigation, reporting and awareness creation. Further, the Bank also has a dedicated Risk Containment Unit (RCU) within FRM Department, which is tasked with reviewing the loan and liabilities applications as part of screening and sampling (S&S) activity. |
| Under S&S activity, the submitted KYC documents are reviewed to ascertain any inconsistency or manipulation in those documents or information submitted to the bank for taking timely preventive and corrective actions. The Bank is also taking help of industry fraud data for online checks via ‘Hunter / Sherlock system on the data shared by the common user group of Banks/NBFC, ensuring improved scrutiny of assets and liabilities applications. | ||
| Furthermore, the Bank is using the EFRM system of NPCI and Inline Fraud Risk Management (IFRM) tool for monitoring the UPI transactions and other suspicious digital payment transactions across all channels except CIB, respectively. |
Risk |
Impact |
Mitigants |
| IT Risk | The risks associated with the increasing adoption of technology include the non-availability of systems and processes, resulting in business loss from both unintentional (faulty use) and intentional (cyber frauds) events. | To ensure efficient management of IT risk, confidentiality and integrity of business and customer information, the Bank has implemented security controls in accordance with the RBI cybersecurity framework. Regular security monitoring is in place and the Bank follows the regulatory guidelines issued from time to time. |
| To ensure business continuity while maintaining security, controls like VPN (with multi-factor authentication), BCP and incident response plans are in place for handling both operational and security risks. | ||
Liquidity Risk |
An asset-liability mismatch might result in liquidity risk for the Bank, which would result in raising fresh liabilities at a higher-cost or liquidating assets at a higher discount rate, thus, impacting the margins of the Bank. | The Asset Liability Management (ALM) Policy of the Bank stipulates a broad framework for liquidity risk management to ensure that the Bank is in a position to meet its liquidity obligations as well as to withstand a period of liquidity stress from bank-level factors, market-wide factors or a combination of both. |
| The liquidity profile of the Bank is monitored on a static as well as on a dynamic basis by using the monitoring of key liquidity ratios and conduct of liquidity stress tests periodically. Periodical liquidity positions and liquidity stress results are reviewed by the Banks ALCO and the Risk Management Committee of the Board. | ||
| The Bank has set prudential internal limits in addition to regulatory limits on liquidity gaps, borrowings, deposits and placements, among others. | ||
| The Bank maintains LCR/NSFR in accordance with the RBI guidelines and within the defined risk appetite of the Bank. | ||
| Cyber Risk | As the Bank is interconnected within and, outside to the internet having complex structure of the people, process, and technology such as the delivery channels, cloud, partners, remote workers, the Bank is prone to cyber breaches such as MiTM attacks, DDoS attacks, Ransomware, etc., resulting in financial loss, loss of data and reputational loss. | The Bank has created an effective and efficient process in line with RBI directions and guidelines to enhance the cybersecurity posture of the Bank. |
| In line with the RBI requirements, the Bank has Cybersecurity Policy, Cyber Crisis Management Plan (CCMP) and Information Security Policies in place approved by the Board. A Governance and Management process has been established, with the applicable roles and responsibilities to ensure policies are implemented, maintained, assessed and improved periodically. | ||
| Cybersecurity Incident Response Team (CSIRT) and Cyber Crisis Management Team (CCMT) are constituted as prescribed under the Cyber Crisis Management Plan (CCMP). Security Operations Centre (SOC) is active on 24x7 basis for real-time monitoring and protection of the Banks assets. | ||
| Bank has complied with Baseline Cybersecurity Resilience requirements of RBI. It has also implemented defence in= depth security at perimeter, network, application, data and physical layers. Cybersecurity awareness program is in place for customers, employees and partners. Furthermore, cyber risk insurance coverage is also in place for the Bank as a fallback against the risks of cyber incidents. | ||
| Bank is ISO 27001:2013 certified. USFBL has received awards from IBA for better Cyber Risk Management consecutively for the past two years. |
Process framework within the compliance department
The Banks Compliance Department consists of Regulatory Compliance, AML Compliance and Legal Compliances. The Compliance Department has an established process of dissemination of guidelines or circulars released by various regulators, review of policies and tracking creation of new policies by the stakeholders, tracking timely submission of returns to regulatory authorities, correspondence with regulatory authorities, transactional alerts monitoring, drafting and vetting of agreements and advising various internal stakeholders on legal Compliances matter. This helps the Bank to ensure effective compliances with policies, regulatory guidelines, and applicable legal framework and action points as per the Regulators expectations.
Following is the key process framework of Compliance Department:
Circular management process
Returns management process
Policy management process.
AML/ Transaction monitoring process under PMLA 2002.
Compliance risk assessment framework (compliance testing) Risk-Based Supervision (RBS) data management
Legal Compliances & advisory management
Circular management process
All Scheduled Commercial Banks (SCBs) in India are required to adhere to various guidelines issued by the RBI and various other regulators from time to time. The Banks compliance department has institutionalized a well-defined circular management process that inter alia covers the dissemination and tracking of the circulars, till implementation.
Returns management process
All SCBs in India are required to submit various returns to RBI and other regulators at periodic intervals as directed by the regulators. The Banks compliance department has institutionalized a robust returns management process to ensure timely submission of such returns.
Policy, management process
The compliance department of the Bank maintains the repository of all policies approved by the Board. To ensure transparency, all departments of the Bank, while reviewing any existing policy or drafting any new policy, seek views from the compliance & legal department, before seeking approval of the Board of Directors. The compliance department tracks the policy review process and ensures that all the policies are reviewed and approved by the Board of Directors within the prescribed timelines.
AML/Transaction monitoring process under PMLA 2002.
The AML cell of the compliance department is responsible to supervise the adherence to the prescribed guidelines with respect to transaction monitoring and statutory reporting under the Prevention of Money Laundering Act (PMLA) to Financial Intelligence Unit – India (FIU IND).
Compliance risk assessment framework
The compliance risk assessment framework of the Bank helps in the assessment of its compliance risk through compliance testing. Under this testing, the compliance department tests the efficiency of controls available in various departments, products and services towards adherence to regulatory requirements and recommends measures to plug the gaps, if any, in the existing controls.
Risk-Based Supervision (RBS) data management.
In addition to the submission of regulatory returns and ad hoc returns to RBI and other regulatory / statutory authorities, the Bank is subjected to RBI inspection at defined periodicity. Submission of data elements under Risk-Based Supervision and interface with the onsite RBI Inspection team is the responsibility of compliance department. Additionally, the Bank is also subjected to regulation and supervision by other authorities like UIDAI / IRDAI / SEBI / FIU IND etc. for various activities undertaken. Compliance Department acts as the interface and the SPOC, representing the Bank vis-?-vis these authorities for any requirements.
Legal Compliances management
The legal Compliances management process is having advisory role, addressing queries related to the following:
Clarification on branch operation queries such as - account opening, drafting and vetting of letters and replies to customers, replies to be filed before Banking Ombudsman, courts and tribunals, and drafting and vetting of draft FIRs to police authorities. Legal interpretation of the Circulars issued by the various regulators.
Advising on issues related to disciplinary proceedings against employees, replies to notices issued by Labour Authorities pertaining to HR issues etc.
Drafting of notices pertaining to Collections, vetting of submissions on behalf of the Bank in cases filed against the Bank, opinions in respect of recovery measures to be taken / proposed way forward in cases filed against the Bank, actions to be taken under arbitration, proceedings under SARFAESI Act, etc.
Drafting and vetting of agreements and supplementary agreements (Non-disclosure agreement, service level agreement, purchase order and other administrative agreements) including advising on the adequacy of stamp duty / execution thereof
Advising on issues relating to title investigation reports prepared by empaneled advocates .
Empanelment of advocates and conducting Legal Audit
In addition to the interaction with the regulators, the compliance department periodically apprises the Banks management, Board of Directors, and Board Committees on the changes in the regulatory environment and the status of compliance thereof in the Bank. Necessary steps have been initiated towards cultivating and building a strong compliance culture within the Bank through the integrated Compliance Department.
AUDIT AND INTERNAL CONTROL SYSTEMS
The Banks Internal Audit Function, as the 3rd line of defense, independently carries out the evaluation of the adequacy and effectiveness of internal controls, information security controls, risk management and processes on an ongoing basis to provide assurance that the policies, regulations, and internal standards defined for management of the various risk are operating effectively.
In congruence with the Reserve Bank of Indias Guidelines on Risk Based Internal Audit (RBIA), the Bank has adopted a robust Internal Audit Policy and the Internal Audit Function undertakes a comprehensive Risk Based Audit of operating units. The audit policy adopted the standards of IIA (Institute of Internal Auditors) to make the function more prudent, future-ready and effective. A Risk Based Audit Plan is drawn up on the basis of risk profiling of the auditee units and an audit of operating units is undertaken at a frequency synchronized to the risk profile of each audit unit in line with the guidelines relating to Risk Based Internal Audit (RBIA) of Reserve Bank of India (RBI). Internal Audit Function has also incorporated Quality Assurance and Improvement Program (QAIP) to improve quality of audit and audit reporting through continuous feedback and training mechanism.
To strengthen Internal Audit Function, the concurrent and off-site audits have been integrated into the internal audit process to achieve incessant real-time supervision and control. The Audit department has got an Audit application which helps in planning, executing, reporting audits and storage of audit documents. In line with the technology adoption and digitization of Bank, the audit team is progressing towards the increasing use of Computer Aided Audit Tools (CAAT) to add value and bring more efficiency and effectiveness to the audit process. To cite an example, IDEA tool is being used for conducting various offsite audits. The Internal Audit function proactively recommends improvements in Operational Process, System Controls and Service Quality from time to time, wherever deemed fit.
To safeguard independence, Head – Internal Audit functionally reports to the Chairman, Audit Committee of the Board (ACB), and for administrative purposes, reports to the Managing Director & CEO. Under helm of the Head of Internal Audit, the banks Internal Audit Team of 196 skilled & experienced professionals are led by 5 National Audit Managers, including a dedicated Information Security Audit team with CISA qualified members. Internal Audit Function also has a dedicated Data Analytics team who help the auditors in generating exception reports directly from the source. Internal Audit Department works under the guidance of Audit Committee of the Board (ACB) which reviews the efficacy of the Internal Audit Department, the effectiveness of controls laid down by the Bank and compliance with internal & regulatory guidelines, thus ensuring the alignment with the Best Practices on corporate governance.
VIGILANCE MECHANISM
The Banks Vigilance and Security Department play a multi-dimensional role in the Bank. The department investigates all types of internal fraud cases such as corruption, cash misappropriation as well as external fraud cases such as cash snatching, theft, robbery, dacoity, untoward incidents and policy and procedural violation cases including whistle blower complaints. All investigations are reported directly to the Banks HR department for initiating suitable disciplinary action once upon categorising into ‘vigilance or ‘non-vigilance angle.
The Vigilance department imparts periodical training to the bank officials on vigilance awareness, surveillance, safety and security of the Banks assets. The department also does surprise visits to branches to facilitate preventive vigilance. The Banks Vigilance Tele calling team contacts to receive feedback on its vigilance measures. The Bank also work closely with police department and other related government departments. Furthermore, USFBL issue timely reminders on vigilance and security awareness. In cases of security issues, the team files police reports and send to concerned business teams for filing criminal cases against the guilty.
INFORMATION TECHNOLOGY (IT)
In todays banking landscape, customers expect enhanced digital experience and availability of secured systems as per their convenience. To meet this expectation, the Banks Information Technology group is constantly pushing themselves to provide a compelling value proposition while maintaining human touch through its branch banking solutions. The Bank has effectively harnessed the power of technology with new age techniques to scale its services and offerings.
Structurally, Change the Bank, Run the Bank, IT Infrastructure support and management, Data Governance and MIS, along with centralised IT governance team under Chief Information Officer (CIO) of the Bank, forms Information Technology Group of the Bank. The IT Group is aligned with control groups of the Bank, Information Security, Audit, Compliance and Risk Management, to ensure IT compliance. To maintain the skill of the IT Group, the Bank has an internal training initiative named ‘Tech Guru to promote digital learning. This is to ensure the members are abreast with the latest industry trends and technologies. During this financial year, the Bank has taken significant strides towards paperless banking and cash less loan repayment. With the e-sign implementation, the Bank has enhanced customer experience by significantly improving convenience. Additionally, the cash less repayment through QR code or through bill desk UPI are value-added proposition for the customers. The Bank has also enabled Lead Management Systems (LeMS) application to handle sales leads. It has also introduced digital platform via salesforce to setup assisted journeys in personal loan product. While collaborating with FinTech partners, the Bank has also automated its FD journeys for sales.
To improve the integration and monitoring capability with Fintech partners the Bank has implemented open banking API gateway. Customer onboarding Tablet solution caters to current account and fixed deposit customers. The Bank is also utilising Robotic Process Automation (RPA) to automate repetitive human tasks with the help of software robot. To scaleup availability of our IT infrastructure, the Bank has upgraded the data centre and network with latest hardware. Applications such as Automated Data Flow (ADF) and Centralized Information Management System (CIMS) and FinNet 2.0, to ensure that regulator expectations are met.
The increasing volume of digital transactions requires the Bank to ensure availability and scalability of systems. Also, the Bank ensures that the organisation is equipped with robust IT applications and sustainable resources to withstand increasing demand and meet the varied customer expectations. The need to digitally innovate has provided an opportunity for the Bank to differentiate offerings. Therefore, the Bank has initiated Technology Transformation Project (AbhiVridhi), which work towards redesigning of process and technology. While the blueprint of transformation journey has already been completed, the Bank is currently working on the ‘Design phase of business processes, vendor assessment and finalisation. During this financial year, the Banks efforts have been recognised by Indian Banks Association (IBA) with Best Tech Talent & Organization category in the Small Finance Bank segment during Technology awards in January 2024
HUMAN RESOURCES AND TRAINING
The Bank recognises the importance of its workforce and strives to cultivate a collaborative and inclusive work environment, encouraging the employees to pursue excellence in their daily endeavours. The Bank understands that the highest potential of an employee can only be achieved when they feel connected to the purpose of the bank, align with the vision of the leaders and have a sense of belonging.
As on March 31, 2024, the employee strength of the Bank grew to 16,081 employees.
The Bank aims to provide continuous opportunities for growth and development of the employees. USFBL has an induction program, named ‘Utkarsh Aarambh that enables the newcomers to understand the Banks vision, mission, values and culture and instill a sense of purpose, belonging and alignment. The program also provides the required information, resources and support and help them adapt, understand their role and become productive members of the team. All employees are provided with ample learning opportunities to strengthen their knowledge and skills on various aspects related to their role and career development. These programmes, ‘Utkarsh Pragati, ‘Utkarsh Udaan, ‘Utkarsh Saksham and ‘Utkarsh Manthan, encompass a range of programs on product and processes, compliance and regulatory aspects, skills development, career progression and leadership development.
As part of Talent Management, senior management participated in Self-Profiler session and a 360 Degree Feedback session. USFBL created a talent pool comprising of high-potential employees. Furthermore, the management identified employees who could be probable successors in the next few years and proper development initiatives are provided to them. The CEO Mentoring Club handpicks employees and gets personally groomed by the MD and CEO by engaging them in various projects. In the reported year, the Bank partnered with IPB and Baddi University to launch the Probationary Officer Program with an initial batch of 40 students. The programme is customised to Banks needs and guarantees a pool of well-trained talent who will be job ready. These probationary officers will be onboarded as first-level supervisors once they successfully complete their programme.
The Bank has also introduced "Judiye Utkarsh ke Max Padonnanti Program se" (JUMPP) which provides employees the opportunity to climb the success ladder in a shorter span by partnering with the business team. USFBL has initiated the fast-track career progression plan for the Sales Staff (Sales Officers) who have completed six months in the Bank or six months has passed from their last promotion date. The Bank has also enrolled under the National Apprenticeship Promotion Scheme (NAPS) and National Apprenticeship Training Scheme (NATS).
CAUTIONARY STATEMENT
Statements included in this MD&A describing the Banks priorities, forecasts, predictions, general market conditions, expectations, etc., can constitute ‘forward-looking statements within the scope of applicable legislation. Such factors and uncertainties include, but are not limited to, the Banks ability to execute plans for development and expansion, variation between anticipated and actual non-performing advances, credit loss reserve, technological change, investment income and various risk profiles.
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