This is quite surprising, board of 100% publicly owned company taking regulatory approval before even declaring the plan to shareholders. This looks quite opaque and unusual to me. I feel quite disappointed as shareholder. I should know what the plan is before they even go ahead.
Kotak went ahead with PNCPS issue without taking appoval first. We all know what happened afterward. 
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Has anyone read this book on Ujjiwan? Worth reading? Any feedback? -
I have read the book. Gives very good insights on the journey of the humble beginnings of the company to being one of the largest MFIs in India.
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Thanks a lot Ankit. Will buy it then 
In the last fortnight, there has been two announcements w.r.t management. They have roped in Nitin Chugh (Head of Digital Banking in HDFC bank) as the next MD and CEO and now Flipkart founder Sachin Bansal as Director on the board.
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I am not happy with this appointment. Secondly i doubt how a person handling primarily customer care units,digital market banking can have sufficient experience to actually lead a complete bank with diverse functions and i doubt whether there is sufficient understanding of the businesses to balance the lending segments to which Ujjivan primarily caters to. To begin with HDFC’s customer care and digital banking team can be huge , but it is one of the below average performers in customer satisfaction or technology advancements when compared to peers like Kotak,ICICI,Axis etc in digital banking. Wait how can we forget the Mobile Net banking fiasco which happened with the roll out in HDFC , i am not sure whether Nitin was directly responsible for heading that team . He has no experience growing business from the ground, he is a person with technology background groomed into a business role for digital banking. I am upset with the decision and never the less hope there are sufficient number of people in Ujjvan to guide him. That’s the only saving grace
I might be wrong and happy to be proved wrong , since i have stake in Ujjivan , but i am completely unhappy at this humdrum decision taken by the management in appointing Nitin Chugh.
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Fact checking required for you. He is with HDFC for last 17 years. You cannot survive there unless you are a performer under a boss like Aditya Puri
https://www.hdfcbank.com/aboutus/News_Room/profiles/nitin_chugh.htm
I am not sure you completely read what you shared
“He currently has direct or supervisory responsibilities for the Bank’s Digital Marketing and Acquisition, Phone Banking, Outbound Customer Contact Center, and the Virtual Relationship Manager channel.”
Automation ,Phone banking,Outbound Customer care center and Virtual Relationship Manager channel. Which of them sounded like core functions handled by a typical banking CEO/CFO ?
Keeping aside Aditya Puri’s approval, comparing HDFC’s digital banking services with that of Kotak,Axis or ICICI ,For an industry leader they are pretty mediocre
Mentioned Currently.
In case you know how organisation like hdfc…Unilever groom ppl …no organisation like hdfc will give you this kind of responsibility unless you know core operations well
Also just fyi…Samit Ghosh himself an exciti banker and no body knows banking ppl better than him
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From intro if Nitin
“In FY 16-17, 80 % of HDFC Bank’s transactions were carried out through Internet and Mobile Banking channels, up from 44% in FY 12-13. HDFC Bank, over the last few quarters, has launched a series of innovative and many industry first digital solutions for its customers, consolidating its position as a leader in the Digital Banking space.”
The impact and role of digital was all encompassing at 80% two years back itself in the market leader in banking. So I think it should be a positive
The time period you are looking at 2012-2017 coincided with multiple factors like data revolution,demonetization and digital penetration. One digital banking head cannot be attributed for all the changes and success.
Secondly my core concern is about a digital banking and automation person taking over the CEO reigns of banking company . If they wanted to improve their automation and digital banking they should hire an excellent CTO or a digital marketing head , not a digital banking head to be lead as a CEO. They are both two different ball games
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@suru27 can you help regarding Ujjivan holding structure , which would mandate it to list shares with ipo option only, rather than demerger ?
Will the existing shareholders get any shares of the SFB in either case ?
I have a question. What is stopping Ujjivan to merge its SFB with itself today? Would that not solve the RBI norm issue?
From what i understood from mgmt , Till 5 yrs of operational completion of bank (ie., jan 2022) , there has to be a separate holding company with 40% stake in the bank. Hence RBI rejected reverse merger with SFB. RBI is open for a reverse merger after jan 2022.
This is how I understand the issue, I may be wrong in my thesis.
The original listing norms of SFBs required that there be a promoter entity, which AU SFB actually do. Bandhan is a universal bank and has different norms. Equitas and Ujjivan didn’t, so they formed a parent company whose shareholders acted as the promoters. As the previous post says, the RBI guidelines mandate that promoters maintain at least 40% ownership until 5 years of listing and bring it down to 26% after that.
Now since the shareholders (institutional) interests are represented in the board, I assume that they will not take any action that will affect their portfolio negatively but there is still a chance things may go wrong.
The management has been saying for the past few years that they are well capitalized till 2020. So this is an opportune time to save some money on listing costs and raising funds. Ideally, they should be reducing the parent company holding to around 50% and then the rest will come from equity dilution. Raising of funds should be seen in good light as this is being done to grow the loan book. Other SFBs like JANA and some MFIs had to raise funds just to clean their present loan book from defaults.
So you can assess the impact of the rest of your holding company with a discount of 50-60% IF the market decides to do so. Ideally, that should be a 20-25% hit on the original investment which IMO the market has already factored in since the news broke out last year. Whether the market decides to punish further from current prices is anybody’s guess.
Here are the scenarios I could game out:
- List the minimum requirement of 10% with fresh equity dilution to meet the listing requirements,
- List the 60% with the shares going to the original shareholders of the parent company.
- List less than 60% and raise fresh equity at the same time.
Scenario 2 & 3 are probably the best options for current shareholders with minimal short to medium term pain. Scenario 1 if it plays out, the punishment on the current shareholders will depend on market forces as they will determine the holding company discount.
Now, on the plus side, the regulations may change if Ujjivan is able to apply and get a universal bank license like Bandhan in 2022. The listing, holding, promoter norms will be different. For the long term investor, this event should mostly be a minor speed bump in the grand scheme of things if the growth actually pans out.
In the short and medium term, the management has cleaned up the books nicely, one needs to monitor the Cost to Income ratio over the next 2 years to gauge the utilization/efficiency of investments made by the management in the last 2 years.
Another monitorable, is the change in leadership, needs to be seen what changes he brings about in the culture and management decisions.
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Here listing means IPO or direct listing ?
News report speak about IPO. so how will they provide shares to the existing shareholders in ipo case ?
Gautham, if they go for scenario 1 & 3, they will go for IPO as fresh investors will come in. If they go with scenario 2 where 60% of SFB shares are proportionally given to parent company shareholders then IPO will not be necessary. They will just list the SFB shares and proportional parent company shares will be extinguished.
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management already hinted only 10% listing(option 1). Please listen at 4:44 secs in the interview by MD.