‘We will take the white-label route to credit cards’

Ujjivan Small Finance Bank, a wholly-owned subsidiary of Ujjivan Financial Services, wants to widen its retail banking footprint. While the foray has been in the works for a while now, the second wave of the pandemic may slow down its roll-out even as it takes a closer look at its existing business lines.nitin CHUGH, the bank’s managing director and chief executive officer, spoke to Raghu Mohan. Edited excerpts:

How do you see the second wave of the pandemic impacting your business?

Collections and disbursements were better than their pre- Covid levels across all our businesses in March, and for the quarter. But we will not be able to retain the efficiency seen in March, and there will be a chipping off on the collections side. We still have two more months in the quarter to go. But we are watching out for collections, especially in the states which are feeling the pain a lot more.

In Assam, there was an almost 8 per cent fall in collections in January on the back of the political announcements. In February, it went up by three percentage points, and held that level in March. So too, in Maharashtra, Punjab and Bengal. But what we are going through will prove to be tricky, because Maharashtra is the most impacted.

Do you see a need for a second set of forbearance measures?

I really don’t know, but once we are able to assess the situation over the next few days, we should have some discussion on it; or if the banking regulator were to reach out to us. But it's a little premature, because things are still unfolding, and the lockdowns are in specific parts of the country. And except for health care, the preparedness of the financial services industry is a lot better than what it was the last time around.

How do you intend to position your retail banking play?

All the products that we are planning to launch — gold loans, credit cards, or new variants in existing product categories — will be directed towards our category of customers. We are into two-wheeler loans (not car loans) and they are typically at ~6500075,000 or thereabouts. It gives you an idea of the segments we deal with. The average ticketsize of our business loans is about ~15 lakh. The ticket-sizes in affordable housing are similar.

We are not going down the entire pyramid to the extent that we start dealing with segments which are more vulnerable. We are trying to push in some categories of formal segments where you have audited financials. As for those with whom we anyway deal with, we are making careful credit decisions.

How different is your credit-card business going to be?

We are looking at a white-label approach. We are not looking at coming up with our own credit card because that will be very costintensive. And the segment of customers we want to cater to are those whom we have acquired through the liabilities side. I would think that for the initial three years or so, we would be happy to do a white-label offering

and that is the discussion we are having right now.

And will this risk exposure be on Ujjivan Small Finance Bank?

You can either share the risk, or front-end it with a card printed with your logo. And behind the card, it will say, “powered by such and such bank”. Like Bandhan Bank has done with Standard Chartered Bank. So, you basically provide the platform, and then you can choose the model — share the risk, or only the acquiring part of the fee, or get into some kind of revenue share on the spends and the like. So, those are the things we are detailing out, and we will close this out before we launch. You see, all options are there once we go through the white-label route.

Do you think there is a case to tweak the small finance bank (SFB) model, since 50 per cent of your loans have to be under ~25 lakh, even as you have to be competitive on deposit rates? And this forces you to lend to certain subsegments to maintain spreads?

In our case, or any other SFB which transitioned from a microfinance institution, 90 per cent of the portfolio is below ~25 lakh. Even if we are to diversify into retail banking, the average ticketsize will be in the range of ~10-15 lakh. The pricing of the loans reflects this drift also. SFBS’ net-interest margins are twice that of universal banks. The pricing is adjusted for the risk. We have cracked the model reasonably well in terms of understanding the risk involved and the ability to underwrite it. This is not to say that we would not aspire to become a universal bank as and when we are permitted. But I don’t think the overall strategy will change very much by doing that. It’s not like we want to get into corporate banking or merchant banking, or any of that. We will make ourselves more efficient in terms of usage of capital.