Next CEO Must Understand Ujjivan Objectives: Ghosh

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Are you looking to expand?

Right now, places like Bihar are where we are planning to grow; then Uttar Pradesh to a certain extent. In Karnataka, where we were a bit slow, we will expand. But, generally, we try not to exceed 20% of our portfolio in any one state.

When do you see the merger between Ujjivan Financial Services and Ujjivan SFB getting completed?

The big thing was our capital requirement which meant that the bank had to have 25% publicly held shares, so we had to do the capital raise. That was the last major hurdle. All that is over, and now, it is just procedural. We have to get approval from stock exchanges and then RBI, so that takes due process. We also require the approval of the National Company Law Tribunal (NCLT). We are expecting the merger to be completed by the second half of next year.

After the top-level exits last year, what kind of handholding did the bank receive from RBI?

They were very worried. We announced a loss because we took a huge provision. Then, with Nitin Chugh (erstwhile CEO) leaving last year, a lot of the people he had brought along quit, and then, some board members also left. That created a lot of concern in RBI. They have put in a board member in Ujjivan for two years, and we have to provide them with regular reports. They were also looking at if we had replaced the management team and the board. Now they are very comfortable. We have a very strong board. B.A. Prabhakar, an ex-chairman of Andhra Bank, is there, and the board is well-balanced. This board has supported the management team during this crisis. We have also replaced the entire senior management team. When we got Ittira Davis as managing director, he had been only given one year tenure by RBI. It was recently extended by another two years.

You said the bank is still looking for a CEO even as Davis got a second term. How would the search be different this time round?

His term has been extended for two years, so we will start the search now. We will look at internal and external candidates. I think we will make sure that whoever comes in, especially if it is an external person, he/she spends some time working with us. That is to ensure the person is completely aligned with the purpose of Ujjivan.

Do you plan to diversify the loan book?

Today, microfinance accounts for close to 70% of our business. RBI has always been keen that we reduce it because microfinance is an unsecured business. They directed us that over time, our asset portfolio should be 50% unsecured and 50% secured. We are trying to build up affordable housing where we have been working for some time. We currently have a ₹3,000 crore book there, and we also have a micro and small business enterprise. Our core is microfinance, and so, as a business strategy, microfinance will always be our base. We will reduce the unsecured to 50%, but that means the housing and other segments will have to grow at a much faster pace. Maybe in another three-five years, half of the portfolio will be secured.

Wouldn’t the higher share of secured loans on your book affect margins?

Affordable housing does not give you a 10% interest margin, and neither do medium and small enterprises. It will not become as profitable, but it will still remain a very profitable business as long as 50% of our business is in microfinance. Even if you look at profitability in the last couple of quarters, you will see among SFBs, Ujjivan is one of the most profitable.

What about consolidation?

We certainly do not want to be acquired. We wanted to have an independent, diversified ownership. But the three SFBs—AU, Equitas and Ujjivan—are a breed apart from the rest. There are other much smaller players because they cannot grow due to capital restrictions. They may sooner or later get acquired.

Do you have plans to become a universal bank?

The capital adequacy requirement for a universal bank is around 9%, and we are at 15%. That is one of the main reasons for becoming a universal bank. Also, universal banks have fewer restrictions in terms of branches. That is the only reason. Otherwise, the focus on this segment—the aspiring middle class, micro and small enterprise, affordable housing —is where the action is. We will complete the merger by the second half of next year, and then we will wait a year or two and apply for a universal bank licence.

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