UJJIVANSFB - Ujjivan Small Finance Bank Limited Share Price

In the earnings call for Q1 FY'26, Ujjivan Small Finance Bank's management provided a forward-looking outlook along with notable guidance for the upcoming periods. The management highlighted that gross loan book growth is expected around 20% for the year, with secured loans anticipated to grow by approximately 35%. Additionally, liabilities growth is expected to align with advances, maintaining a credit-deposit (CD) ratio around 88%. The management aimed for a CASA percentage target of about 27% by year-end.

The cost-to-income ratio is projected to stay around 67%, with credit costs anticipated to be in the range of 2.3% to 2.4% of the average gross loan book. The management expects return on equity (ROE) to be between 10% and 12% and return on assets (ROA) to be around 1.2% to 1.4%.

Sanjeev Nautiyal, the MD & CEO, noted the successful shift toward a higher percentage of secured loans and the potential improvement in NIM, projecting it to stabilize at approximately 7.8% by Q4 FY'26. Noteworthy is the adoption of the MFIN guardrails 2.0 which is aimed at enhancing portfolio quality. Furthermore, the bank anticipates benefits from regulatory changes reducing Priority Sector Lending (PSL) requirements, giving flexibility for better capital allocation.

Overall, the management's outlook demonstrated optimism regarding business strategy and growth potential while maintaining focus on asset quality and financial metrics.

Here are the major questions and their detailed answers from the Q&A section of the earnings transcript:

1. Question: "During Q1, we saw most asset quality metrics deteriorating across segments. Is it largely due to seasonality?"

   • Answer: Yes, the higher PAR in Q1 is mainly due to a lack of any ARC deal unlike Q4, which significantly reduced our PAR. We did have about INR150 crores of write-offs. Thus, without interventions, the metrics showed a slight uptick.

2. Question: "Regarding micro mortgages, is there spillover from JLG affecting this?"

   • Answer: The micro mortgages book, primarily at 15 MOB, might see slight PAR increases as it stabilizes. About 80% of the book is in that age, which supports our growth strategy, particularly in the sub-10 lakh segment.

3. Question: "On the NIM decline, how much impact came from liquidity buffer and interest reversals?"

   • Answer: The NIM change is attributed to asset mix (25 bps), excess liquidity (17 bps), and interest reversals (14 bps), totaling a 56 basis point decline. We expect NIMs to improve to around 7.9% in Q2.

4. Question: "How do you see collections improving with increased manpower?"

   • Answer: The ramp-up is focused on SMA collections and NPA recoveries. We've seen improved efficiency in early buckets, helping achieve lower slippage rates. The approach seems effective as has been reflected in Q1 collections.

5. Question: "What is the outlook on the CGFMU cover for loans?"

   • Answer: We've started utilizing CGFMU from Q4 and will continue. While I can't provide an exact percentage, we aim to cover parts of the portfolio periodically based on quality assessments.

6. Question: "With Ujjivan plus 3 borrowers underperforming, when is this expected to stabilize?"

   • Answer: As this segment's delinquency rises, it will take another quarter to see the number decline significantly. Efforts are underway to mitigate the impact by improving collections on those accounts.

7. Question: "Can you elaborate on your guidance for credit costs moving forward?"

   • Answer: We project credit costs to stabilize around 2.3% to 2.4% of the average gross loan book, reflecting expected improvements in asset quality and lower slippages in the second half of the fiscal year.

8. Question: "For PCR, can you provide any forecasts?"

   • Answer: We anticipate the PCR hovering between 75% to 77% throughout the year. We have INR21 crores in floating provisions not included in this PCR computation.

9. Question: "What percentage of NPA accruals are we seeing from MFI?"

   • Answer: Approximately 80% of our quarterly provisions of INR225 crores relate to our microfinance initiatives, highlighting our focus on ensuring asset quality in this critical area.

10. Question: "What is the expected collection efficiency normalization timeline?"

    • Answer: We aim for our microfinance collection efficiency to approach 99.5% in Q3, having recorded 99.4% in recent months, which indicates impending stabilization in the collections environment.

These summaries encapsulate the core questions and pertinent answers from the earnings call transcript, reflecting the bank's performance outlook and specifics regarding their credit and asset management strategies.