Don’t go too deep as far as ujjivan is concerned, interest margin earned spread will be one of highest in banking industry, wait for 2-3 years for magic to unfold. This stock should be kept for longer duration.
I think as PSBs die a slow death, SFBs like Ujjivan will slowly capture rural market share. I sense the management quality to be capable of such a transformation. Lets see how it plays out over the next 10 years.
Few months back I was in Lajpat Nagar in Delhi and saw an Equitas branch there. I thought why would they open a branch in Lajpat Nagar in South Delhi? There are few other branches as well in that area, like kotak, hdfc etc.
Then I had a look around. More than 50% people in that vicinity we’re unbankable by private banks. If not for lending, everyone can do with a basic bank account where private banks will be least interested. And this is Delhi, imagine the size of opportunity in rest of the country.
Got this promotional mailer from Ujjivan today (Landed in Primary Inbox on Gmail strangely). Looks like they are marketing themselves more, now that they are a SFB.
Also, can you please elaborate the following-
Though I am invested in an SFB, i guess the word ‘small’ in SFB actually does not give a very good feeling about the bank to the depositor.
Considering SFBs are banking the unbankable, more than the ‘S’ in SFB, it is the ‘B’ in SFB thats important. As for deposits, I don’t think people who already have a bank account with a large bank would open one with a SFB but the ones that are poor (now) will and as they move up because of the inevitable increase in per capita income as we grow, the deposits will grow with it in existing accounts (For eg., I still use my first salary account opened with HDFC). Considering business for a bank is in lending, developing this base that is going to show a growth in consumption in the future, is not a bad thing at all.
What I meant was totally with the perspective of liability business. Big banks don’t want to focus on small depositors as it’s kind of cost ineffective for them. But as we have seen with JDY, this is a huge opportunity for SFBs. Bandhan which is in business for last 4 years only as a bank, has already grown to CASA ratio of 30%. It took yes bank more than 10 years to reach there.
- Many people have multiple bank accounts (more than 3 even).
- Look at the website of some of these SFBs. I hold equitas for ex. I think that the website (or the IT infrastructure, interest rates etc ) is at par with best of large banks. If they didn’t have the word ‘small’, they would be getting a lot more deposits from large depositors.
Good to see Moneylife positive on Ujjivan in particular.
unsecured lending particularly micro finance is 97% compared to 30% of Equitas.My thinking therefore is Ujjivan will trade at a discount to Equitas due to this risk factor.
I couldn’t find the source of this-
100 best companies to work for is an interesting list to look up. Ujjivan is 3rd
Please post the link if you have
Ujjivan has better geographical diversifications, equitas has better product diversification and then comes the numbers which are end result of many small things.
From a longer-term perspective, banks are better placed to keep the borrowing cost in check due to CASA. However, it surprises me that despite all the small finance banking peers and even the likes of Yes Bank offering interest rate of upto 6.5%, they offer only 4% interest. An interest rate of even upto 7% is lower than their marginal cost of funds from the market. Is increasing CASA even a target for them.
Disc: Invested since IPO
I remember reading an interview of Samit Ghosh where he addressed this. He said that SA portion of CASA will improve with branch network and they don’t want to offer higher interest as it’s not very effective. Despite higher interest offering, people rarely switch their saving accounts. Better strategy is to offer better rates on FDs.
Being a banker, I agree to this. All new private sector banks (yes, Indus, kotak and rbl) started with at least 100 bps spread over FD offering and still offer somewhat higher rates on FDs. I believe that SFBs will be able to garner CASA faster than private banks because of extensive branch network they are establishing. Yes took 10 years to reach 600 branches. Ujjivan will be at 470 branches by end of 3rd year.
Yes bank also follow somewhat unique strategy to tap SA. They focus on getting salary accounts of companies where they have lending arrangement. SFBs should also do that. They can even tap SMEs where private banks are somewhat reluctant due to lower float and high operational cost. In fact, I wanted to suggest this to Ujjivan management on con call but didn’t get chance.
@Mayank_Narula Totally agree with you. I remember from Ujjivan’s ppt that avg. balance per CASA is around 4k, and 2% difference implies less than 100 rupees, hardly a matter of consideration.
Equitas offers 7.25% for FD of 1-3 years and Ujjivan 8% for the same.
Here is a verbatim note from the management in the q1fy18 conference call in this regard.
“Actually savings accounts now SBI has reduced to 3.5% and others will follow. Our understanding is that the savings account and current account is basically a transactionary account and customers are not interest sensitive about it, they are interest sensitive more on FD’s, RD’s etc. So frankly we will stick to 4%.”
Ujjivan will now be the part of Nifty Midcap 100 Index and Nifty Small cap 100 Index. Dont know how can a stock be a part of both Smallcap and midcap index at a same time!