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NIM will face heat in a rising interest rate scenario; expect MFI growth to remain strong in Q4: Ujjivan SFB

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NIM will face heat in a rising interest rate scenario; expect MFI growth to remain strong in Q4: Ujjivan SFB

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Ittira Davis, MD and CEO, Ujjivan Small Finance Bank (SFB), on Tuesday, said that net interest margin (NIM) is at a good level for the bank. However, as interest rates start to rise, it will be difficult to maintain NIM at the current level. He also mentioned that the MFI book has seen good growth in Q3 and going ahead, he expects it to be strong in Q4 as well.

Ittira Davis, MD & CEO, Ujjivan Small Finance Bank (SFB), on Tuesday, said that net interest margin (NIM) is at a good level for the bank. However, as interest rates start to rise, it will be difficult to maintain NIM at the current level.
He said, “The NIMs are at a good level now, but as the rate environment changes and interest rates go up, NIM will come under pressure. But the whole industry, at some point, will be able to pass on some of that to the end-user of the funds, but there is often a lag in these things. However, we are managing that situation and I believe that we will look at keeping NIMs within a manageable level for our bottomline.”
Ujjivan SFB recently came out with its Q3 earnings. The bank trimmed its net losses significantly to Rs 34 crore in the quarter ended December 2021 on the back of lower provisioning, increasing collection efficiency and highest-ever loan disbursals. The bank had posted a net loss of Rs 279 crore in the corresponding quarter a year ago.
Total income of the bank rose by 2 percent to Rs 799 crore in the third quarter of FY22 compared to Rs 786 crore in the year-ago period, with a 3 percent growth in interest income to Rs 708 crore. However, other incomes of the bank fell by 9 percent to Rs 91 crore during the quarter under review.
On its performance, Davis believes the worst is behind now, and the bank will soon be able to do better. Explaining further, he said that the Q3 numbers are in fact much better than last few quarters’ figures. Additionally, highlighting microfinance institutions' (MFIs) growth, he mentioned that the portfolio has grown very well in Q3 and going ahead, he expects it to be strong in Q4 as well.
He said, “The section of society which is supported by the MFI book has had a tough year-year-and-a-half and they are quite resilient and as the economy picked up, they bounced back and we are being able to support that section of the economy.”
On its Rs 600 crore QIP, Davis explained that the bank will need to have public holding of 25 percent by December 2022, as per the Securities and Exchange Board of India's (SEBI) requirement. He said, “At this stage, the SEBI requirement is that we have 25 percent public shareholding within 3 years of our initial IPO, which was in December 2019. So by December 2022, we have to raise the public shareholding from the current level to 25 percent and that’s one of the main reasons behind the Rs 600 crore QIP.”
On his appointment, he mentioned that the Reserve Bank of India (RBI) has chosen to start with a one-year term, however, the shareholders have approved his tenure for a period of 3 years.
“The shareholders of Ujjivan SFB have approved my tenure for 3 years. The Reserve Bank of India (RBI) has chosen to start with one year term and then it’s up to the RBI whether they extend it or not, but for the moment it’s a one year term,” Davis said.
Watch the video for the full interview.
(With PTI inputs)
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