UJJIVANSFB - Ujjivan Small Finance Bank Limited Share Price

The management provided a positive outlook for Ujjivan Small Finance Bank, highlighting strong growth and operational performance in Q2 FY '26. Key metrics included:

1. Economic Environment: India's Q1 FY '26 GDP growth was 7.8%, prompting the RBI to upgrade FY '26 GDP growth estimates to 6.8% and lower inflation forecasts to 2.6%.

2. Deposit and CASA Growth: Total deposits increased 1.5% Q-o-Q and 15.1% Y-o-Y to INR 39,211 crores. CASA deposits crossed INR 10,000 crores for the first time, growing 14.9% Q-o-Q and 22.1% Y-o-Y.

3. Loan Disbursement and Growth: Loan origination hit record levels with disbursements of INR 7,932 crores, a 21% increase Q-o-Q and 48% Y-o-Y. The gross loan book reached INR 34,588 crores, up 3.9% Q-o-Q and 14% Y-o-Y, with secured loans now making up 47% of total lending.

4. Microfinance Stability: The microfinance portfolio showed improved repayment behavior. Bucket X collection efficiency improved from 99.46% in July '25 to 99.50% in September '25.

5. Branch Expansion: 14 branches were added in Q2 FY '26, with plans for 11 more in H2 FY '26, focusing on micro banking products.

6. Asset Quality: Slippages reduced to INR 278 crores from around INR 350 crores in previous quarters. The bank aims for a decline in credit costs in the second half of the fiscal year.

7. Profitability Indicators: Net interest income grew to INR 922 crores, and PAT for the quarter stood at INR 122 crores, with a net interest margin of 7.9%.

The bank is strategically focused on enhancing its secured loan portfolio, aiming for a secured book growth of over 35% for FY '26. The management expects improvements in both cost of funds and margins, aiming to end the year with a cost of funds around 7.1%. Overall, the bank expressed confidence in sustaining its growth trajectory despite external challenges.

1. Question: "What is the strategy here in the non-micro banking piece, given the yields have not moved from around 12%?"

   Answer: I understand your concern regarding profitability. Housing has been profitable for years. Gold loans, while new, should breakeven within a year. We're targeting around INR 1,000 crore for two-wheelers by year-end, which should also break even. Micro mortgages are already profitable, and MSME is nearing breakeven. By year-end, we expect most sectors, including supply chain finance, to reflect positive results.

2. Question: "What are the trends you are seeing regarding growth opportunities in microfinance?"

   Answer: We've identified recovery trends in various states after previous stress. Tamil Nadu and Karnataka are stabilizing. Most districts are now conducive for growth, while Gujarat may need a little more time. For H2 FY26, we're forecasting about 7%-8% growth in the micro banking sector for the full fiscal year, with positive signs in disbursement.

3. Question: "What is the rationale behind the risk weight growing faster than loan growth?"

   Answer: The recent increase in RWA can largely be attributed to operational aspects like off-balance sheet adjustments and ratings related to institutional borrowers. Effective RWA utilization aligns with our loan growth and profitability estimates, which should stabilize in line with our projected loan growth.

4. Question: "Is the improvement in collection efficiency a sustainable trend for Q3 and Q4?"

   Answer: The uptick in September's collection efficiency from 97.2% to 98% is indeed encouraging. This improvement indicates a positive trend, expected to continue as we manage delinquency and NPA books more efficiently. Our focused collection efforts on smaller buckets have paid off.

5. Question: "What's your guidance on credit costs for FY27 given your asset quality improvements?"

   Answer: We're maintaining our guidance for FY26 credit costs in the range of 2.4%. We see improvement in H2 with lower write-offs compared to H1. The new lending has shown better quality. As such, we anticipate better asset quality moving into FY27.

6. Question: "What is the expectation on IL growth considering the challenges faced?"

   Answer: Individual loan growth has been cautious, but we foresee much better growth in the next two quarters. As we filter out high-quality borrowers transitioning from group loans, we expect a resurgence in individual loans, likely surpassing group loan growth in the near term.

7. Question: "What levels do you expect your cost of funds to eventually settle at?"

   Answer: We anticipate our cost of funds to decrease further as we continue to reprice deposits. Our target to end the year with a cost of funds around 7.1% seems achievable, given recent trends in TD repricing, which should lead to continuous benefits in the following quarters.

8. Question: "How do you monitor the end use of individual loans?"

   Answer: We implement strict purpose-based lending for both GL and IL. All loans undergo a detailed Loan Utilization Check (LUC) by bank employees to ensure purpose adherence. This policy applies consistently to manage and assess the impact of loans effectively.

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