‘We have a lot of experience from the last fiscal’

Nitin Chugh, MD & CEO, Ujjivan Small Finance Bank

The impact of the second wave of Covid is far widespread than that of the first wave, when there was not much impact in rural areas and not much loss of livelihoods and radical reduction in collection efficiency, observes Ujjivan Small Finance Bank MD & CEO Nitin Chugh. In an interviw with Mithun Dasgupta, Chugh says the bank will have to estimate how much loan restructuring would be needed for microfinance portfolio, going forward. Excerpts:

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Ujjivan Small Finance Bank’s net profit for the fourth quarter last fiscal jumped 86.5% year-on-year. However, its total income and net interest income (NII) fell during this quarter. What are the reasons behind these decreases?
There is only one reason. We had recognised the pro forma GNPAs as GNPAs after the Supreme Court vacated the stay (on banks for classifying loans which were standard as on August 31, 2020, as non-performing assets). That led to the reversal of interest income on GNPAs or de-recognising of the income to the extent of around `75 crore. And, that led to reduction in income as well as reduction in net interest margin (NIM).

Going forward, how do you expect the interest income growing?
I think as long as the loan book continues to grow. Last fiscal we grew by 7%, but that was largely because of we started to push the businesses only from the December onwards. We are now confident that since we were able to grow the book by nearly 11% quarter-on-quarter in the fourth quarter, as and when things get normalised, which we are hoping will happen hopefully by the end of the current quarter, then we should go back to rebuilding the businesses and growing. So, the income will, therefore, continue to grow as the book grows.

How much provisions did you set aside towards Covid-related risks?
In Q3, we had taken the accelerated Covid provision of Rs 547 crore making the aggregate provision to Rs 1,029 crore at the balance sheet level. From Rs 1,029 crore, we had written off Rs 74 crore in Q4 which is also the total write-off during the year, that brings down the provisions level to Rs 955 crore. That is what we are holding even now. We have free provisions of Rs 172 crore, and the balance is provided on account level, which makes our provision coverage ratio (PCR) of 60%. We had made provision of Rs 25 crore on interest accrued on proforma GNPA in Q3, which got reversed post the Supreme Court order.

Amid the second wave of Covid, how do you see the asset quality for the bank’s microfinance portfolio in the future?
The bank had made the upfront provisions due to the deterioration of the asset quality that we saw in the last financial year. Obviously, there is continuing stress. A lot of our customers had not even recovered from the first wave. This time around the infections keep spreading in rural areas as much as in the cities. So, the impact is far widespread than ever before. Last time, we did not see much impact in rural areas, we did not see loss of livelihood and radical reduction in collection efficiency. But, it does look like that the second wave will probably get resolved in the next 30-45 days the way the cases are coming down now. The RBI has very timely announced a lot of measures, especially for the small finance banks. So, we have those framework available to us to operate efficiently and responsibly, in terms of restructuring, etc. We have a lot of experience from the last financial year. We do know that what kind of things will work for collections and disbursal. At the end of March 2021, 96% of our microfinance customers were paying, fully or partly. In April collection efficiency dropped to 88%. At the moment, everywhere across the country, collections are lower than April.

How much bad loans did you write off for microfinance portfolio last fiscal? And, what is the outlook for restructuring, going forward?
For the whole year, we wrote off Rs 74 crore, and of that microfinance was around Rs 60 crore. All these accounts were NPAs as of February. We did not do any restructuring in microfinance loans. We did minor restructuring in housing and SME loans, which were less than Rs 30 crore. This time around we will have to estimate how much restructuring will be needed for the microfinance loan and we are working on the available policy frameworks.