The COVID-19 pandemic and suspensions have put a lot of pressure on the microbanking sector, with Ujjivan Small Finance Bank witnessing losses, a surge in non-performing assets (NPAs) and a high-risk portfolio and high-level exit due to differences in provisions for bad loans.
On Friday, the bank’s shares fell 19 percent to Rs 19.70 on BSE after the announcement that President and CEO Nitin Chugh resigned on Aug. 19. A week earlier, Harish Devarajan had resigned as additional director (independent). This was preceded by the bank’s financial results for the quarter ended June 2021, when it revealed deteriorating financial results. Previously, B Mahapatra had resigned as chairman of the bank within 10 months in February 2021.
The bank, promoted by the founder of Ujjivan Financial Services, Samit Ghosh, was launched in February 2017. It reported a loss of SEK 233 million for the quarter in June, compared to a profit of SEK 55 million a year ago. What has upset the markets and analysts is the deteriorating quality of the bank’s assets with gross national agreements that rose to 1,374 crore (9.8 percent of advances) in June this year from 139 crores (1 percent) last year. year. The risk portfolio rose in June from 1.8 percent last year to 30.8 percent. That means a whopping 4,084 crore of its loan portfolio is at risk.
According to a board member of the bank, who did not want to be identified, the problem started a year ago when Covid hit the country and customers refused refunds. “There was insufficient provisioning during the first two quarters of FY21. There were differences of opinion between the promoter (Ujjivan Financial Services) and the bank’s board about the provision. The then chairman, Mahapatra, resigned. Then there was a higher turnover in the third quarter, he says.
– Now things are normalized. Collections have improved and the sales coverage ratio of 75 percent is one of the highest in the industry and the bank is well capitalized at 26 percent. The situation will return to normal if the third wave does not go through and the bank’s customers are vaccinated, the bank manager says. Earlier this month, when Nitin Chugh stepped down, the outgoing president and CEO announced the results: “The onset of the second wave of Covid and the subsequent restrictions and closures shocked the industry, especially the microbanking sector which was facing severe stress. Our operations and fundraising volumes were impacted by corporate constraints, resulting in a subdued overall performance during the first quarter of FY22. ”
The bank’s share price is down 56 percent from its 52-week high of SEK 44.50 on BSE.
Last week, the Council’s Nomination and Remuneration Committee appointed Samit Ghosh, formerly Ujjivan Financial MD Sudha Suresh, former Andhra Bank CMD BA Prabhakar and Ravichandran Venkataraman as additional board members effective August 20, 2021. Though Prabhakar is tipped to become Chairman of the Bank Carol Andrade will be named Officer on Special Duty by the bank until a new CEO and CEO are appointed, sources say.
“Chugh’s departure came as a surprise to us. He came under a lot of pressure and the older team that started the bank also left the bank, says an official of Ujjivan Financial Services, the bank’s promoter. Samit Ghosh was previously rejected by shareholders for the position of CEO and CEO of Ujjivan Financial Services, but remains chairman.
The Ujjivan SFB’s performance was weak, mainly due to an increase in crime resulting in higher credit costs. Net interest income was ruined by interest rate reversals driven by levels. As many as 150,000 customers who were NPAs in June 2021 began paying in July and saw total upgrades of SEK 300 million excluding restructuring,” according to a report from Centrum Broking.