Asset quality and attrition are priorities: Ujjivan SFB
Lender’s stock tanks 19% after surprise resignation of MD & CEO
Post the surprise resignation of Nitin Chugh, managing director (MD) & chief executive officer (CEO), Ujjivan Small Finance Bank’s board will meet on August 25 to appoint an officer on special duty. The officer will work alongside Chugh until his exit from the bank, to ensure a smooth transition till the time an interim CEO is appointed.
Samit Ghosh, non-executive chairman, Ujjivan Financial Services, which is the holding company of the bank with an 83 per cent stake, said the portfolio quality of the lender and the high level of attrition in the last six months are the two biggest concerns.
Chugh, who was appointed MD & CEO of the small finance bank in December 2019, resigned from his position, citing personal reasons. Chugh’s decision to quit has come amid a sharp spike in bad assets of the lender in the quarter gone by.
This resulted in the bank suffering losses because of heavy provisioning.
Shares of the lender have tumbled more than 18 per cent on Friday to end at ~19.70, a 52week low, on the BSE, following the surprise developments at the bank. Even Ujjivan Financial Service’s share nosedived 12.38 per cent on Friday to end at ~177.60 on the BSE.
The lender has seen a big churn at the top with six board-level resignations, which include those of MD & CEO and the chief financial officer (CFO). The CFO resigned soon after the first quarter ended in June 2021. The bank has also seen a spate of resignations at the middle level and the field staff. Ghosh has indicated that the bank would be keen to reonboard the employees, unless they have taken jobs somewhere else.
Ghosh, who has now been appointed to the board of directors of the bank, has highlighted that Ujjivan Financial Services has been concerned about the portfolio quality and the attrition at the bank. Chugh was in no way forced to resign, which was his personal decision.
Speaking to Business Standard, Ghosh said, the bank’s immediate priority is to ensure a smooth transition, manage asset quality and stem the tide of resignations. The bank was in touch with banking regulator Reserve Bank of India (RBI) on dealing with the current challenge. The new permanent MD & CEO could be an internal or external candidate and the appointment would take at least 3-6 months, factoring in the time for the selection process and getting RBI approval.the top contender for the interim CEO post seems to be Carol Furtado, head of operations at the bank, Emkay said in a research note post an analysts call with the bank management.
The bank would also induct a few more board members to enhance governance, Ghosh said. Simultaneously, the bank would work on the reverse merger of the holding company with the bank. It will approach the RBI in November with the proposal for a reverse merger, he said.
The holding company has also been working to strengthen the board of the small finance bank. And, consequently, B A Prabhakar, EX-CMD of Andhra Bank, and Ravichandran Venkataraman, also a banker, were appointed independent directors. Sudha Suresh, who served as CFO and MD of the holding company, has also been appointed to the board as a non-executive, non-independent director. He will play a pivotal role during the reverse merger.
Ghosh, in an interaction with a TV network, said last quarter Ujjivan Small Finance Bank made a lot of provisions, and consequently, had a big loss.
In Q1 of FY22, the lender suffered a loss of ~233 crore due to heavy provisioning for its bad assets, which saw a 236 per cent year-on-year (YOY) rise. Asset quality of the lender also deteriorated sharply, with its gross non-performing assets (gross NPAS) rising to 9.8 per cent at the end of the June quarter (Q1 of FY22) from 1 per cent in Q1 of FY21.