MFI Interest rates
5 Likes
Thanks for sharing this 
2 Likes
2 Likes
I used to Track this company when they was Demerger.
I fell that the company/management do over commitment to the investors and when the time comes of delivering they find some reason and postpone the execution.
I fell that any commitment given by the company needs to taken with pinch of salt.
Even Applying for Universal license was discussed last year, the management said post demerger we would immediately apply for Universal License but till date they are proposing to floating it.
I don’t expect they would receiving universal license by March’2025. Add 1-2 quarters to the deadline committed by the management
Sale Of NPA. 5a37bca4-735d-4784-a7d0-3e3de800ec45.pdf (183.3 KB)
1 Like
A few questions sent to Ujjivan IR team on Sunday, Nov 17 2024 with responses received yesterday (Thursday, Nov 22 2024)
Q1: There have been some reports that there’s a lot of voter ID duplicity that happens. (Moneycontrol Interview of Ms. Padmaja Reddy, Keertana Finserv Pvt Ltd, ex Spandana Sphoorty Financial)
Can you please help understand our KYC procedure and whether it prevents us from falling prey to such illicit means of securing multiple loans by the same individual under different identities.
Do we always insist on Aadhaar with biometric (fingerprint and/or IRIS verification as mentioned by one other NBFC-MFI in their recent quarterly earnings call - Satin Creditcare Network) or is there any alternate means of verification we do? If so, how does that ensure we do not end up giving multiple loans to the same individual/family under different identities?
Response: We have a robust onboarding process compliant with the KYC guidelines. At Ujjivan over 99% of customers (Except branches from assam and Meghalaya where Aadhaar penetration is low) are onboarded through Aadhaar EKYC (Through Bio metric authentication) and we are ensuring mandatory collection of 2 Identity proof documents from our customers in view of enhancing credit bureau matches. In terms of percentage of multiple ID submission, we have 99.8% borrower with dual ID Proofs and 7% of borrowers with 3 ID proofs. PAN is the second largest identity document being collected from the customers with close to 72% penetration (with online authentication facility from Protein) followed by Voter ID with 35% penetration. With higher penetration of Aadhaar and PAN amongst our customers and facility to digitally authenticate the documents helping the bank in safeguarding from identity frauds and avoid funding to same individual with different identities.
At CIC level, micro finance customer had 100% Aadhaar seeding in CIC database before the restriction on sharing Aadhaar number came into effect. In the absence of Aadhaar as a unique identifier in micro finance CIC data, PAN can be the next most preferred ID proof in the CIC eco system in the coming days with appropriate push from the industry association to address the issue of identity duplication.
Q2: Recently RBI, during its FY24 annual inspection of banks and NBFCs, flagged concerns regarding the widespread use of ‘netting off’ in microfinance loans - “netting off” was defined as the practice of extending another credit facility a few installments before the existing credit facility / loan was due to come to an end in order to ensure that customer accounts remain in good standing.
Does this affect us? As a practice, are there instances where we end up giving additional credit to customers a few weeks/months before their existing loan is due to mature - and customers ending up using some portion of these newly extended loans / credit lines to pay off previous loans/credit lines, thereby kinda evergreening?
Response: Netting off as a practice is commonly followed by the micro finance lenders. We are in discussion with the industry SRO MFIN to define standard guidelines on the process of netting off so that it cannot be construed as ever greening by the regulator. A formal Regulatory communication in this regard is also awaited till such time it may not be prudent to comment on the practice.
Q3: There are industry wide concerns around while customers meet the upto 4 (number of) loans and max of 2 lacs (amount of loan) at the time of disbursal but post that other players in the industry end up giving them loan and because of which they breach the MFIN SRO guidelines of a max of 4 lenders / ₹2 lacs loan amt.
- Is it fair to assume that we receive credit bureau information on a regular interval (weekly / monthly) basis that allows us to determine how many of our customers are breaching these limits?
- If so, what actions do we take in such situations to ensure recovery of extended loans and perhaps penalise such behaviour by blacklisting borrowers so we don’t fall prey to such misdoings in future?
Response: Most of the lenders in Micro finance industry are now following MFIN guardrails which restricts lenders to become 5th Micro finance lender and or having MFI exposure greater than Rs 2 lacs. As the new guardrails are implemented from late July and from August 2024 the instances of incremental cases with overleveraging might have declined in the last couple of months. MFIN is also expected to release their quarterly adherence report on the implementation of guardrails with its member institutions for highlighting the instances of breaches if any for necessary corrective actions by the lenders.
- As a prudent measure, we have been doing quarterly bureau scrub for all our customers to understand their borrowing status, levels of indebtedness etc and from this quarter we are doing this exercise on a monthly basis considering the recent stress in the market. For new to bank borrowers, we have a stringent internal guardrail where we can be max 3rd MF lender and or MFI exposure including new loan cannot exceed Rs 1.5 lacs.
- Additionally, the existing borrowers who have breached the guardrails shall not be eligible for further loans until their borrowing limits come down to acceptable levels. Action plans against each such borrowers differ on a case-to-case basis as per our collection interaction.
7 Likes
Don’t know if it’s just me, but responses to Q2 and Q3 don’t inspire much confidence on the risk management practices at the bank.
1 Like
I don’t know. After reading up on several private sector banks, NBFCs I have come to realise that in most cases (except when there are glaring concers / irregularities such as poor business model, zero sum same - i.e. borrower has to lose for lender to win, governance issues) the issue isn’t business, the issue is people not paying heed to valuations at fundamental level and relying on other people’s work (analysts, market commentators, influencers, PMS/AIF interviews on news channel, historical valuations - history itself might be falling in bear phase) to make a judgement as to when and whether to invest.
People lose money in well run companies with excellent profitability/growth and people make money in sub-par periods of profitability. What matters is understanding economics of the business, getting confidence that the business is run by able / honest management - not one who’s behind money or status or other forms of non-shareholder-friendly motives and lastly, buy at a fair valuation with insistence on some margin of safety.
5/7/10 years down the line will a Ujjivan Small Finance Bank (or any business being evaluated) live and not just live but also thrive? And at that time will they have significantly better business economics than they do now? If the answer is yes, is the bank currently available at a valuation at which one would want to hold on to it if business economics / management remain BAU (business-as-usual)? Not prediction but based on tangible / visible economics as of now. Nobody asks these questions, some analysts do - which is helpful, but largely nobody does. Which is where I think most participants miss the forest for the trees.
Needless to say, these are just my rumblings, I could be wrong, right, whatever! But the way to think is what I am trying to highlight.
People who have been running business for decades (e.g. Ujjivan is in business since 2005 or 2007 I think) are being questioned by novices about short term business metrics like what will be this year’s return on assets and what is the current cost of funds, where will be cost to income ratio, etc. and that is being used to buy/sell the stocks and retail investors are falling prey to this. Madness!
8 Likes
I agree, Good times and good price don’t come together.
but Small Finance banks are cyclical in nature if any unforeseen event happens like natural calamity, etc… the banks has no other option than writing off the asset. I believe what ever they have written off for this quarter and going to write off for the next one or tow quarters. it is already discounted in the price and have sufficient provisions for it.
the company’s topline has been growing consistently every year, there has been no Year they have posted a loss.
positives in my opinion,
→ Good Management.
→ might get universal banking license in the coming year.
->Long-term growth is intact.
Disc :- invested from the recent lower levels.
1 Like
Don’t think that management ever said that immediately after reverse merger they would apply for universal banking license. All they said at various instances was that first their focus is on completion of reverse merger before applying for Universal Banking licence. And obvious reason being that balance sheet & capital adequacy improved meaningfully post reverse merger. They have for the first time given timeline of applying in this financial year in June,2024 at the analyst meet in Mumbai.
I would like to believe that ideal time to apply for Universal Banking licence is post March, 2025 results. But they might apply, as already communicated by them, in Q4 of current financial year.
4 Likes
Trading volume today was 5.57 cr i.e. 2.88% of total shares. Seems unusually high.
2 Likes
Some assumptions using AI after NPA sale considering same sales as present quarter:
- Data and Assumptions
-
NPA Sale: ₹270 crore sold at 15% recovery = ₹270 × 0.15 = ₹40.5 crore recovered.
-
Provision Coverage: 85.61% already provisioned.
- Total provisions = ₹270 × 0.8561 = ₹231.15 crore.
- Loss recognized on sale = ₹270 − ₹40.5 − ₹231.15 = ₹(1.65 crore) (minor loss).
-
Current GNPA Ratio: 2.23%
-
Total Advances: ₹24,000 crore (assumed based on current reports).
-
Post-NPA Sale: GNPA reduces by ₹270 crore, bringing it to:New GNPA (₹)=535.2−270=₹265.2 crore\text{New GNPA (₹)} = 535.2 − 270 = ₹265.2 \text{ crore} New GNPA Ratio=(265.224,000)×100=1.1%\text{New GNPA Ratio} = \left(\frac{265.2}{24,000}\right) \times 100 = 1.1%
-
Next Quarter NPA Increase:
-
Assuming increase of +0.5% * = ₹120 crore increase in GNPA.
-
New GNPA Post-Increase=₹265.2+₹120=₹385.2 crore\text{New GNPA Post-Increase} = ₹265.2 + ₹120 = ₹385.2 \text{ crore}
-
New GNPA Ratio=(385.224,000)×100=1.6%\text{New GNPA Ratio} = \left(\frac{385.2}{24,000}\right) \times 100 = 1.6%
2. Impact on Profit or Loss
(a) Provisions for Increased GNPA
-
Assuming similar provisioning of 85.61%, the provisions for the ₹120 crore rise would be:
-
Provisions=₹120×0.8561=₹102.73 crore\text{Provisions} = ₹120 × 0.8561 = ₹102.73 \text{ crore}
-
(b) Profit Impact
-
Previous quarter’s net profit: ~₹330 crore.
-
Current quarter adjustments:
- Loss on NPA sale: ₹(1.65 crore).
- Provisions for increased GNPA: ₹(102.73 crore).
Net Profit Estimate (New Quarter)=₹330−₹1.65−₹102.73=₹225.62 crore\text{Net Profit Estimate (New Quarter)} = ₹330 − ₹1.65 − ₹102.73 = ₹225.62 crore
-
Key Observations
-
Profit Impact: The ₹270 crore NPA sale at 15% recovery will only result in a minor loss of ₹1.65 crore due to high provisioning already made.
-
Next Quarter Net Profit: Despite the ₹120 crore GNPA increase, the bank’s net profit would drop to around ₹225.62 crore due to additional provisioning.
-
Asset Quality: GNPA ratio would rise to 1.6%, which is still better than the pre-sale level of 2.23%.
Summary for next quarter
- Base Case EPS: ₹1.67
- Adjusted EPS (Post-Provisioning): ₹1.14
- Share Price (P/B = 1): ~₹29.3 per share
Note: with a 1.6% increase in total NPA qoq (cumulative GNPA ~3.2%), Ujjivan would begin reporting a net loss.
All are blind assumptions
2 Likes
They made a profit of 1.65 cr from this sale not loss which will flow into P&L as other income.
For H2 PAT, use the guided FY25 credit cost of 2.3-2.5% to estimate the provisions, write-offs and derive a PAT.
FY25 PAT expected is 900-1000 cr if the CEs and credit costs remain stable to improving in H2.
1 Like
This is True in bullish case scenario.
In a bearish case/moderate
scenario for Ujjivan Small Finance Bank (SFB), we assume challenges such as higher credit costs, weaker collection efficiencies (CEs), and slower loan book growth. This would impact both profitability and return on assets (ROA).
Assumptions for Bearish Case:
- Credit Cost: Increases to 3.0%–3.5% (higher risk of delinquencies).
- Advances Growth: Slower growth in advances (approx. ₹23,000 crore instead of ₹24,000 crore).
- PAT Impact: Decline in net profit due to higher provisions and operating expenses.
- Total Assets: Remains around ₹33,000 crore.
Key Adjustments:
1. Credit Cost Provisions:
- Credit cost for H2 FY25 at 3.5%:
Provisions (H2)=₹23,000×3.5%2=₹402.5 crore.\text{Provisions (H2)} = ₹23,000 \times \frac{3.5%}{2} = ₹402.5 \text{ crore}.
2. Full-Year PAT:
- Higher credit cost reduces PAT substantially. Assuming other income remains stable and no major operating income growth:
FY25 PAT=Operating Income−Provisions (Full Year)−Other Expenses.\text{FY25 PAT} = \text{Operating Income} - \text{Provisions (Full Year)} - \text{Other Expenses}.
With increased provisions, PAT could fall to ₹600–700 crore (down from ₹900–1,000 crore).
ROA in Bearish Case:
- Lower PAT (₹600 crore):ROA=60033,000×100=1.82%ROA = \frac{600}{33,000} \times 100 = 1.82%
- Upper PAT (₹700 crore):ROA=70033,000×100=2.12%ROA = \frac{700}{33,000} \times 100 = 2.12%
Conclusion:
In a bearish case:
- PAT could drop to ₹600–700 crore, reflecting weaker profitability.
- ROA would range between 1.8% and 2.1%, significantly below the bullish case scenario of 2.7%–3.0%.
1 Like
Bill seeks to ban unregulated lending. Will benefit MFI sector
How about loans to friends in personal capacity?
Such laws are all bark and no teeth. There is a reason why these moneylenders can charge whatever they want: They are the lender of last resort, and this is the Wild West of the country.
No amount of legal, regulatory recourse could stop the borrower from defaulting on this loan. When the borrowers default on a regulated entity’s loan there are rules to be followed for recovery, with local moneylenders who have hired goons, there are no rules.
IMO, nothing is going to change for the moneylenders. Govt. doesn’t have the apparatus to enforce the law in its true spirit, both before and after the loan disbursal.
7 Likes