Our bor­row­ing cost could fall by 2% in FY18: Ujji­van Fi­nan­cial


Ujji­van Fi­nan­cial Ser­vices shares ral­lied 10% to close at Rs358 on Wed­nes­day after a sub­sidiary re­ceived sched­uled bank sta­tus from the Re­serve Bank of In­dia. The non-banking fi­nance com­pany in­formed ex­changes on Tues­day that Ujji­van Small Fi­nance Bank, the wholly owned sub­sidiary, has been in­cluded in the sec­ond schedule of the Re­serve Bank of In­dia Act, 1934. Sudha Suresh, man­ag­ing di­rec­tor and chief ex­ec­u­tive of­fi­cer of Ujji­van Fi­nan­cial Ser­vices, spoke about the de­vel­op­ment in an in­ter­view. Edited ex­cerpts: Can you tell us what are the new con­di­tions and what are the old con­straints that won’t ap­ply? Def­i­nitely, that is good news for Ujji­van Small Fi­nance Bank with the sched­uled bank sta­tus com­ing on. And what this re­ally trans­lates to is the ease of the fund­ing fa­cil­ity in terms of in­crease in de­posit sourc­ing and that opens the door for is­suance of cer­tifi­cate of de­posits (CD) and you have the in­sur­ance firms, the mu­tual funds, banks, as also the co­op­er­a­tive banks which can now come for­ward across fund­ing and de­posit im­mo­bil­i­sa­tion. You can do CD, that is one. What is the other? Is there any­thing in terms of your as­set book also? Were there not ge­o­graph­i­cal re­stric­tions in the small fi­nance? Any of those go away?

No, in terms of our busi­ness, the small fi­nance bank (SFB) con­di­tions stand good. So the SFB guide­lines which were pro­mul­gated by RBI ear­lier, they have spec­i­fied in terms of the as­set port­fo­lio which is typ­i­cally that 50% of your busi­ness has to be be­low Rs25 lakh and 50% of your busi­ness can be above that per cus­tomer. So not much changes there on the busi­ness, but what this tran­si­tions as a sched­uled com­mer- cial bank typ­i­cally is on the li­a­bil­ity busi­ness and it for­ays great open­ings in terms of var­i­ous sources of fund­ing and that is def­i­nitely go­ing to have a good im­pact in terms of the cost of bor­row­ings.

So you re­main a small fi­nance bank but you are a sched­uled com­mer­cial bank?


So, how does the cost of money come down be­cause of the change on the li­a­bil­i­ties side?

So, to ex­plain it in sim­ple terms, with the fa­cil­ity of be­ing able to mo­bilise de­posits through banks and in­sur­ance com­pa­nies as well as through mu­tual funds, what is go­ing to hap­pen is in­creas­ingly we could see a spate of in­crease in fixed de­posits as well as CDS and typ­i­cally these could come at var­ied costs. One can look at pro­gres­sively re­duc­ing the cost to al­most about 6.25 to 6.5%, any­thing sub-7%.

And as you know, as an Nbfc-mi­cro­fi­nance in­sti­tu­tion (MFI), to a large ex­tent, our bor­row­ings were with al­most an av­er­age cost of fund­ing at about 10-10.5%. So you would see that as the NBFC MFI grand­fa­thered loans that we have on our books, as these get eased off with their reg­u­lar pay­ment as well as some amount of pre-pay­ment and these get in­creas­ingly re­placed with de­posits where the cost could be sub-7%. How long will the tran­si­tion take? By when can we ex­pect this to start show­ing up? To add to that, this year it­self, how much of the old deben­tures are get­ting redeemed? So this year, what will be the re­duc­tion in cost of funds?

I will put it in this way. Once you look at the new cost of bor­row­ings which could be at 7%, one should not for­get to add tech­ni­cally the statu­tory liq­uid­ity ra­tio (SLR) cost which could be any­where be­tween 1-1.2%. So tech­ni­cally all we could look at is, with ef­fi­cient bor­row­ing, our bor­row­ing could come down by 2% or 200 ba­sis points. That is one.

Se­condly in terms of the grand­fa­thered loans from banks and in­clud­ing deben­tures and ev­ery­thing, what could be ex­pected in terms of a nor­mal run­down is al­most two thirds of our bor­row­ings could run down in the nor­mal course and one third could be run down in the next fi­nan­cial year. And if we talk of do­ing some part of it as pre­pay­ments prob­a­bly the two thirds could be as good as three-fourths of our ex­ist­ing bor­row­ings— grand­fa­thered loans—could run off in this year.

Okay, one last num­ber. What was your net in­ter­est mar­gin (NIM) in the first quar­ter, what do you ex­pect to end the year with in terms of NIMS?

That we will be able to clar­ify bet­ter post our half-yearly re­sults. So let us keep it at that. But def­i­nitely this her­alds, in terms of at least the sched­uled com­mer­cial bank, the open­ing up for bring­ing down our cost of bor­row­ings her­alds def­i­nitely a bet­ter po­si­tion.

The guid­ance that you have given us, roughly a 200 ba­sis points re­duc­tion in cost of bor­row­ing, that is over one year or are we talk­ing about maybe two fi­nan­cial years? How many months?

We are talk­ing about that in one fi­nan­cial year. We are talk­ing March 2017-March 2018.

Two-third of our bor­row­ings could run down in the nor­mal course, the rest in FY19: CEO Sudha Suresh


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