We are seeing loan demand coming in from all quarters: Ittira Davis, Ujjivan SFB

"Maybe if the interest rates go up further, we may have some resistance but at this point in time, the loan demand is still fairly good," says Ittira Davis, MD & CEO, Ujjivan SFB.

Given that we did see the Reserve Bank and that surprise move actually holding interest rates, what is your view in regard to this rate pause? Will this be the terminal rate and what is your sense in terms of the impact on individuals like customers from a loan demand perspective and otherwise?
Yes, I think although the market was expecting a 25 bps hike from the RBI, it is good that RBI has held the rates because I think it is better to watch and see what is the outcome of the current situation. Conflicting reports are coming from the market in terms of economic activity and sometimes it is better to wait for a while and then take a final decision. So I think holding it is good for the market. There has been a big scramble for deposits in the last quarter especially during March which is the end of the financial year and that would have extended into the new quarter, the New Year if we had seen a hike in interest rates so that hopefully will be tempered a little bit. Now in terms of loan demand, the economic activity is still there. So we are seeing demand from some quarters especially our business is still seeing some demand. Maybe if the interest rates go up further, we may have some resistance but at this point in time, the loan demand is still fairly good.


So coming to your loan growth, it is a seasonally strong quarter and you have managed to match the Q4 FY22 growth of 10% sequential. Talk to us about where the demand is coming in from and also how is the diversification to non-micro lending going?
Yes, I think the demand for us is coming from all quarters. We are trying to improve the level of our secured book and in the fourth quarter we have seen good demand from housing. Our affordable housing has also done very well. So I think the demand for loans we are seeing from all quarters although the micro banking was very good, the standout for the fourth quarter is affordable housing.


On the diversification with regard to the new businesses, how do you expect progress on that and by the end of 2024, what will be the mix?
Yes, all the new businesses which are essentially secured loan businesses have started off some in a very small way but we see all of that picking up during the new financial year 23-24. And by the end of the year, they will be providing a few percentage points to the overall numbers, so that we will see a slight shift in our product mix.
The portfolio will look more like only about 65 to 67% micro banking and the rest of it will be a secured portfolio. So as we move forward, a more balanced portfolio is what we are looking at in the days ahead.

Your deposits as well have seen a sharp uptick. So where are these deposits coming from is it fresh customer acquisitions? And is the growth on the deposit side, according to you, sustainable?
Yes, I think that is a very good point. Our deposit base has grown much faster than even the loan growth this year and that is commendable given the way in which interest rates in the market is looking for deposits.

We have had several new customers coming on board. There are certain target markets that we are concentrating on. All of those have done very well. Going into the New Year, we are already seeing a fair level of liquidity which will help us set the tone and set the pace for this year and we believe that our strategy is quite sustainable. We are opening 100 new branches this year. Even the 50 odd branches that we opened during the last financial year have all aided this growth. In addition to this, we are pushing ahead with our digital strategy which is again going to help us to build a good deposit base.

You have also held up onto a 9% plus margin level as deposits go up where is it that you expect the margins to go?
Yes, the higher interest rates will hold out for a little longer. We may not start seeing the downturn. I mean, definitely not until the later part of the second half of this financial year. So during the first half, we will be able to maybe sustain the net interest margins around the levels of the fourth quarter and once those are announced in a few weeks’ time that will be known. But we should be able to maintain ourselves around the fourth quarter levels. And hopefully into the second half when interest rates begin to show a downward trend, the margins will begin to come in our favour.

Fair point, but talk to us about the risk. Where do you see risk? What kind of credit cost you are looking at in terms of the new book?
Yes, the collection numbers and also the NPA collections have been very good. And our objective is to make sure that our zero to 12 buckets are very well looked after.

Collections are being addressed and we are looking to sustain on those levels. So I think, in fact, the COVID conditions have sort of gone away. We are coming back to more normal conditions and everything revolves around the economic activity.

As long as the economic activity can be sustained, I see that the NPAs and the power will be maintained, and we can bring it down towards the pre-COVID levels and that is really our objective getting it back to pre-COVID levels.

And the bank is growing at a good clip. If we were to ask you where your key metrics would stand by December when the current term ends, do you think that you could tell us where you want to see Ujjivan over the next couple of years?
Yes, the bank is growing at a good pace, as you rightly said. We have a flight path which we are following. And I think we are well on the right track. We will be able to keep the growth levels going forward. And also as I said, diversify the portfolio that, of course, will mean some adjustment in our product mix and in the short run may have some impact on NIM.

But in the long run, I think we have a sustainable model and after the reverse, we are right now in the final process of the reverse merger.

Once that is completed later this year, I think we will be able to look at other ways of growth as well and that is something that will help us to move forward.

So you are currently guiding for the merger to close by the end of this calendar year, any chance of it closing earlier? Could you give us a timeline?
Well, all the documents have been submitted to the NCLT. So as and when NCLT comes back to us for various things to be concluded, we will work with that. But we are expecting this to happen or completed during the third quarter of this financial year and I think that target should be achievable.