Ujjivan Financial - Small Finance Bank

(Rajesh_R) #21

Yes, it is 49%. Regulators will control & bring it down to 49%.


Please explain a little more if you have an idea of how would the regulator bring it down to 49%. Right now Ujjivan is an MFI. The regulations should bind when it is about to become SFB. So, would Ujjivan have to ensure that FIIs bring down their ownership around the time final approval for becoming SFB is received? FIIs are behaving in a weird manner, buying shares of Ujjivan while knowing that they have to sell their ownership soon. Given the quantum of excess ownership that they have accumulated, they would have to avoid selling together.

(Rajesh_R) #23

I think this is a non-issue. Just wondering do you see any major issue here?

I am sure there are many such instances where FII holding went few points above cap and remedial measure were taken to bring it down.

Instead of worrying about things which regulators and company will handle, I am focusing on increasing my mfi knowledge by reading http://www.amazon.in/Bandhan-Making-Bank-Tamal-Bandyopadhyay/dp/8184004982/ref=sr_1_1?ie=UTF8&qid=1470066024&sr=8-1&keywords=bandhan+the+making+of+a+bank+tamal+bandyopadhyay


The issue is the rush by FIIs, and maybe other investors too, to buy the stock for short term gains. The sale of the excess ownership of FIs can lead to negative effect on the market valuation of Ujjivan. That makes me wonder if their purchases have contributed to the recent jump in share price. Moreover, if FIIs end up selling in the open market at the current rate of 6 lacs shares that are being delivered daily, then it would double the supply of deliverable shares in the market and still take two weeks for them to unwind.

(Rajesh_R) #25

I generally take multiyear view of a stock. Things like these are just noise & I don’t waste much time on it.


Thank you for your opinion. Your confidence is admirable.

(newone) #27

Perhaps Ujjivan will issue more shares and thereby bring down the FII holding and also raise money in the process for greater growth?


That’s possible. But, the company does not need capital for next 2 years. A premature dilution would be at lower valuations and hurt existing shareholders. I usually see the regulator prohibiting FIs from buying any more shares, after which some of them sell their shares and the holdings fall within the regulatory limit. Lets see…

(newone) #29

Yes, that also can happen. Btw, are you invested in Ujjivan? The CMP is
very high but the company seems to be very good. It one of the best
employers in India as well.

(Manoj Agarwal) #30

RBI on 9th May has notified that Foreign investment in Ujjivan cannot exceed 49%. See this:


Now once this is notified RBI monitors the limit as:


Further on 15th June RBI notified the crossing of limit as under:


So the question arises as to how this limit of 49% was crossed inspite of RBI monitoring.

(CommonStocks) #31

FII holding for a smaller company like Ujjivan is not going to be detremintal to the business apart from the volatility it brings in to the stock price. We should take note that the investor base is getting wider and domestic investors are equally capable of bidding up or taking down the stock price. Lets focus on the long term business qualities instead of FII holdings limit.


Thanks Manoj!
I learnt something new today. FIs would have bought a chunk of shares after which RBI placed freeze on further purchases by them. The friends who are not interested in FI holding in the company may kindly ignore these messages. Please don`t force others to discuss what you find worthy.

(vaibhav) #34

Although CommonStocks did make a valid point.

FI holdings will be much more important for bigger cos. (Like HDFC bank , Mcap = 3.1 lac cr. compared to 5k cr. for ujjivan).

Disc.: No holdings here.


Pardon my ignorance. I don`t know about why FI holding is more important for large companies. Can you please explain?

(vaibhav) #36

FIs carry a lot of weight. They hold 25-30% of top Indian cos. some 50% shares are held by promoters.

For smaller cos. , it doesn’t matter much. Even domestic funds can make smaller cos. trade at good valuations. You can just make out from the fact that Ujjivan is just 1.7% of HDFC bank in terms of market cap. Bigger cos. and stock market as a whole need FIs for sustaining good valuations. They are a source of liquidity.

Also, Why should the market trade at frwd PE of 18-19 when you can get 8% on fixed income? The reason is that elsewhere in the world, yield is very poor.


I agree that small companies can be richly valued on buying by HNIs and domestic institutions. However, that was not the point that I was talking about. I was talking about 5.5% holding by FIs that is in excess of RBI regulations. If this holding gets sold together in open market during some unfortunate scenario, then it would take more than a week to get liquidated and would suppress the stock price. If things do not go awry, then these shares may be sold to domestic institutions and may not affect share prices.

(Amitayu) #39

Some Conference Notes from Q1 , FY17 Ujjivan Con Call

  1. Foreign shareholding has gone up to 54%. Management is in discussions with the regulators to figure out ways so that they can reduce the foreign shareholding of the company to around 49%, below the 50% mark. Will be sorted out in the next few months
  2. IT Infrastructure Setup : Going in full force and on track till now Tied up with Wipro as System Integrator , Infosys for CBS (Finacle)
  3. Organization restructure carried out at senior management level as company is moving from single product company (MFI) to multi product company (SFB). For Key managements position hired Senior managements who have well experienced and sound background in Banking operation.
  4. Long-term bank rating upgrade by CARE and ICRA to A+, as also the short term rating upgraded by CRISIL and ICRA both to A1+.
  5. Group loans contribute about 87 per cent of Ujjivan’s business while individual, education, housing and SME comprise the remaining 13 per cent. In five years, management expect almost an equal division between group and individual lending. Largely, the growth will come from housing and micro SME business.
  6. During SFB transition the opex will be 8.5% converting cost to income ratio to 62- 63 % for fy 17 and fy 18.
  7. The average ticket size has still room to grow up but limited (Current is Rs 23000). Regulatory guideline of having Rs 60,000 exposures. If that has been divided into between two MFIs, 30,000 is the kind of ceiling one MFI would have.
  8. SFB will be launched in first quarter of next calendar Year.
  9. Rating upgrade form o A+ to A1+ will help further reduction of borrowing costs.
  10. MSE disbursement growth is muted this quarter as Management was building up the team for the MSE business on a large scale across the country. Management expects fairly robust growth in the MSE business from next quarter
  11. Focusing a balance between business group and the portfolio quality which leads to a fair amount of responsible lending on Ujjivan’s behalf
  12. What is the unique distinction of Ujjivan from other MFis?
    • For each branch, based on it’s history and lending operation experience ,Ujjivan have a credit policy dedicated to that branch which limits the kind of exposure which they can take . There are no other micro finance institutions maintain credit policy down to the branch level.
    • Ujjivan, one of the few institutions where credit is separate from sales and every credit is actually every loan is independently approved from credit team, once the proposal comes in from the branch.
  13. Group loan NPAs are in range of 0.1% in a sustained basis, For unsecured individual loan that can go up to 1% to 1.5%.
  14. As per SFBs and RBI meeting on whether SFB will come under 2 MFI rule or not , It has been decided SFBs will not be under Regulation of 2 MFI Rule, but will abide by the loan cap of 100,000 which RBI has set for micro finance customers.
  15. As ujjivan is now focusing on more unsecured Individual Loan (IL), they are checking entire debt exposure, the debt servicing capacity of that customer along with detailed cash flow analysis, in-depth financial analysis. IL is not qualified as qualified asset as per RBI so that two MFI rule,Rs 100000 gap does not apply for this.
  16. Capital Adequacy is 29% hence there is no capital required for next six to eight quarters.
  17. Cashless Disbursement touched the ceiling .Incremental growth in cashless disbursement will happen from here only once they converted into a bank. Management aims for 100% cashless disbursement once they converted into SFB. Also have an ambitious target to open 32 lac saving bank account for existing 32 lakhs customer after one year of operation.
  18. ROI of GL is 22%,24% for unsecured individual loan ,15.75% for secured home loan,20% for secured business loan. Home loan ROI is comparably high than other HFCs but keep away themselves from here because there is no clear document available which establishes their ownership so to that extent it’s a very unique segment for Ujjivan and at 15.75% they will be able to get customers who are willing to take this call.
  19. 30%-35% of customers would be in first cycle (Rs 60000 cap) approximately 50% of customer would be beyond second cycle (Rs 100000).
  20. FY17 Growth Guidence: 35 to 40 % growth YOY(MFI growth Guidance min 30% ). Post SFB conversion same growth guidance will be followed.
  21. Constantly will raise the commercial papers both for the purpose of branding and borrowing. Talking to some of the institutions for the next commercial papers, whose rate could be, sub 9-odd.
  22. Increase in overall rejection rate is mainly because MFIN has started taking either Aadhar or voter card as a primary address proof or primary identity proof, earlier the rules were slightly relaxed but now any borrower who wants to take micro finance loans they have to provide either Aadhar or voter card increasing the overall match into the system.The bulk of the rejection is for the 2MFI reason .
  23. Will going to increase the quantum of securitization to minimize CRR
  24. The cyclicality in business is as follows , The business is up in the second quarter compared to the first quarter , again a slight dip in the third quarter and similarly up again in the fourth quarter .
  25. Target audience for Opening Saving Account:
    • micro entrepreneurs and lower end of employed category who are under served
    • who may have bank account but still continue to save outside the organized sector in various schemes(State Govts cracked down on chit fund instituion , they all are shut down, hence this area will be explored)
    • Customers who are unsatisfied with the kind of service they receive from other banks especially the PSUs
  26. As after conversion 10% NIM is not applicable , There is no pressure from RBI to decrease the effective interest . Moreover RBI is encouraging SFbs to do the risk based pricing which is required by banks.
  27. The basic banking services will be offered like deposits, remittances etc., loans .No plans to issue credit card etc., there will be a debit card which will go with their savings account. Will not go to price war like Kotak or Yes Bank, may offer slightly better rate than PSUs
  28. Risk Management Practice : In MFI the individual credit risk especially in-group lending is not that high because the system itself is so robust in terms of customer selection, in terms of support during stress period through the group etc., that individual credit risk is very negligible. However, the biggest problem crops up when there is an external factors, which come into play and where there is a sort of mass default which is usually engineered by some outside interest whether it can be for various reasons now these are not always predictable except one has to be very careful to ensure the risk in a particular areas this happens when there is excessive competition in a particular area and there is lot of lending concentrated in a particular area it also could come about because there is a industry, which in that area, which goes under for some various reasons it could be from import of textiles from China etc., so one has to be very careful from that perspective. The only way to distance away from this kind of a mass default is before go into that area ,MFI have to do a risk assessment of that area and also ensure that if there is excessive lending, if they already operate in that area and there is already signs of excessive lending in that area then MFIs have to just sort of slow down as far as possible because that mass default because of external factors which have the greatest cause of credit risk in micro finance. Ujjivan always have a separate credit policy dedicated to every branch.

(CommonStocks) #40

Putting down some thoughts on how some of the SFBs are going to evolve over the next few years. I have been following the writings from some of the seniors on this forum and there are some fresh perspective coming on the MFI and NBFC sector. Couple of perspectives I can recall are a) Liquidity chasing the sector b) Asset Liability Mismatch and High Debt

These thoughts in a way reinforced my bullishness on MFIs that have got SFB license and have been preparing to be a bank for quite some time now. I remember reading somewhere that “Today’s MFIs are Tomorrows Banks”. It is wishful thinking to assume that all MFIs will go down this road, but it does seem to be playing out that way for some of them.

Here is a quote from an article that appeared in 2012 where the author compares Bandhan and Ujjivan:

In some ways, the progression of Bandhan and Ujjivan follow a pattern set by many other microfinance companies in India. MS Sriram, a former professor of IIM Ahmedabad who has studied the sector, says the entrepreneurs created organisations in their own images—based on their background, interests, strengths and personalities.

Thus, Tara Thiagarajan, who came with faith in science and scientific approach, is building an organisation that reflects her vision. Nachiket Mor, who came in with an implicit trust in branch banking, helped in the creation of KGFS, a low cost regional rural bank. PN Vasudevan who spent several years at Cholamandalam is moving equitas in the direction of an NBFC. SKS, of course, continues to reflect the complex personality of Vikram Akula.

So does Bandhan and Ujjivan. Career banker Samit, a believer in processes and people, is building an organisation that will in effect morph into a bank once the regulations allow it.

And the NGO worker Chandra, blessed with a rustic intelligence and an instinct for jugaad, is building an organisation that will spread everywhere, but be firmly grounded around the needs and capabilities of its captive customer base. The path won’t be easy for either. Samit will face competition from banks trying to tap bottom of the pyramid market, and new and nimble players with no legacy systems and better technology. Chandra will find it difficult to replicate the model in other states, because it’s so integrated with the other aspects of society.

Looking back at this after 4 years, most things have progressed as anticipated. In hindsight, Bandhan being the first MFI to start operating as a bank had its own share of challenges and lost opportinites. Read this:

There were two major challenges — one is managing the conflict between the existing and lateral recruits and the other is IT. As an MFI, we used to hire rookies, mostly undergraduates, and train them to become our foot soldiers. It was much easier to manage them. After receiving the licence, we started hiring laterally for branch banking. There were potential conflicts between these two sets of people. We had to rationalise the expectation of the existing team and at the same time had to make the new set of people understand our ethos of business and what the grassroots customers look for.

The second challenge was IT. We had no experience of using IT of this scale. It was complicated and painful process of feeding 74 lakh customer data into the new system. We had slowed lending during that period. There was no new disbursement between June and September last year.

Ujjivan is likely to make this transformation next and it seems to have learnt from the mistakes of Bandhan and has put in place a good strategy (Focus on Employees/Best Employer, IT adoption, Lateral recruits from banks, etc.,) to make the transformation less painful.

Bandhan, with its focus on rural areas seems to be not so contend with its deposit base and is doing things that one would have least expected of them, such as targeting the affluent and moving to cities. Read this:

The bank has decided to open about 300 branches to add to its current tally of 700 in the next one year and a majority of these will be in urban pockets in step with its plan to target the affluent society. The new branches are planned aesthetically with special bay and e-lobby to cater to the riches.

(CommonStocks) #41

Management Interview on transition to SFB, loan book composition and cost to income

While we go through the transition, we don’t want to grow at a very accelerated pace. However, the composition of our growth in the next five years will change from pure group finance to the individual lending which we do for micro SME and for the affordable housing side.


It is around 50 percent or something, cost to income but the cost to income in the next two years because we are investing very heavily in the transformation process in terms of technology, infrastructure for branches, people, etc, it will go up. It will go up to 60 percent plus level or something and then we expect it to drop down maybe slightly around current levels.

(v4value) #42

Exactly what I expected when I suggested market grab opportunity for pure MFI in my posts above with high profitability next 2 years :slight_smile: