| Ujjivan Small Finance Bank Limited | ||||
| CD reaffirmed ; Short term FD Programme placed on 'Notice of Withdrawal' | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to annexure for Details of Instruments & Bank Facilities |
| Detailed Rationale |
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CRISIL has reaffirmed its 'CRISIL A1+' rating on Rs 2500 crore certificate of deposits programme of Ujjivan Small Finance Bank Ltd (Ujjivan SFB). CRISIL has withdrawn its rating on certificate of deposit programme of Rs.1500 crore since the outstanding against the same was nil. CRISIL has also placed the rating on short term fixed deposit programme on 'Notice of Withdrawal' - on the bank's request, for a period of one year and the rating will be withdrawn at end of the notice period. This withdrawal is in line with CRISIL's policy on withdrawal of its ratings. |
| Analytical Approach |
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CRISIL has assessed the standalone credit risk profile of Ujjivan SFB in order to arrive at the rating. |
| Key Rating Drivers & Detailed Description |
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Strengths: * Established presence in the microfinance space of India Ujjivan SFB, the third largest small finance bank in the country, benefits from its established presence and long track record of 15 years, in the Indian microfinance space. Of the total portfolio, 78% constituted microfinance loans which corresponded to a market share of close to 6% in the Indian microfinance space. Even as the bank continues to expand into non-microfinance segments and its asset mix improves, CRISIL believes that microfinance would continue to form about 50% of AUM over the medium term. The presence in microfinance space is also geographically well diversified. In its portfolio no state accounts for more than 17% of the total loan book. Additionally, its presence in MFI space helps expansion of portfolio in adjacencies such as micro and small enterprise loans, and housing finance. Moreover, exposure to political and regulatory uncertainties associated with the microfinance sector will diminish gradually as the bank increases its scale in non-microfinance business. The bank's assets under management (AUM) grew at a robust rate at 31.0% (annualised) over 12 months ending December 31, 2019, almost similar to the corresponding period of last fiscal, to reach Rs 13,618 crore at the end of it. Apart from the micro-banking portfolio, which forms 78% of the AUM ' affordable housing at 10% is another budding segment followed by MSE at 7%. * Adequate capital position reflected in a sizable networth and healthy capital adequacy ratios Ujjivan's capital position remains adequate in relation to its scale and nature of operations. The bank, on December 31, 2019, reported a networth of Rs. 3,108 crore and a tier I CAR of 27.5% - both of which include the impact of Rs 1045 crore raised during the initial public offer made and ESOPs in December 2019. Throughout its banking history, Ujjivan has maintained a tier I CAR of >18%. On December 31, 2019 ' the bank's gearing stood at 4.4 times and its networth coverage of net NPA was comfortable at 57 times. As an SFB, Ujjivan has more flexibility to raise capital and therefore, capitalisation should remain adequate over the medium term, in the normal course of business. * Sound risk management systems and processes Ujjivan SFB continues to have an independent credit vertical for sanctioning loans. The credit team also administers ground-level processes followed by the sales team. Credit bureau verification and internal deduplication are conducted centrally. Ujjivan has a strong independent internal control and audit function for conducting frequent audits of its branches. It has implemented technology solutions for managing liabilities and other banking functions such as treasury, risk management, and compliance. It will continue to benefit from its sound systems and processes and will be able to revive asset quality in the microfinance business to normalcy, over the near to medium term. However, ability to replicate sound systems and processes in small and micro enterprise loan, home loan, and home improvement loan segments is to be demonstrated. * Extensive experience of board and senior management team The board of directors and senior management comprises experienced and renowned professionals from the financial services sector, strongly oriented towards establishing high-quality and scalable systems and processes. Basis the new organization structure of the bank, the senior management team has been strengthened in the last two fiscals. Experienced professionals have been hired to manage functions such as liabilities, treasury, risk, compliance, and marketing. It has also trained a large number of employees to take up management roles. After Mr. Samit Ghosh, the founder, retired from his executive role in the bank - the bank has on boarded Mr. Nitin Chugh who joined as President in August 2019 and subsequently, took over as MD&CEO in December 2019. He brings along wide experience of 25 years in traditional and digital banking across organizations like HDFC Bank (since 2001) and Standard Chartered Bank. Weaknesses * Low, though increasing retail deposit base; CASA remains lower than comparable peers While the share of retail deposits (CASA and retail term deposits) has been gradually increasing, it still remains fairly small at 43.9% of total deposits as on December 31, 2019. CASA, in comparison to peers, was also low at 11.6%. The proportion of institutional deposits remains significant at 46.7% and has been a key factor for growth in overall deposit base over the last few quarters. The bank's focus on mobilization of deposits has increased in fiscal 2019. Post transition to bank in February 2017, most of fiscal 2018 was spent in overcoming demonetization related challenges apart from completing the process of transformation to banking platform. This led to a lagged pick up in the deposit franchise and thus, the base of retail deposits including CASA, is low. Over the last 4-6 quarters, the deposit profile has evolved in terms of granularity and average maturity profile. The reliance on short term certificate of deposits has declined substantially from 56.6% as on December 31, 2017 to sub 10% - two years later. Correspondingly, with higher volumes of longer tenure deposits being garnered, the proportion of deposits maturing after 1 year has increased from 35.1% on December 31, 2018 to 64.8% now. CRISIL believes, with the increased focus on deposit mobilization now, Ujjivan SFB's deposit profile will become granular over the medium term. * Modest credit risk profile of borrowers A significant portion of the portfolio comprises microfinance loans to clients with below-average credit risk profiles and lack of access to formal credit. For instance, in the individual loan and micro and small enterprise loans, typical borrowers are vegetable vendors, small machine and lathe owners, tea shops, provision stores, small fabrication units, waste paper recycling units, tailors, and power looms. These customers belong to the semi-skilled self-employed category, and their income flow could be volatile and dependent on the local economy. Pressure on the borrowers' cash flow due to unforeseen circumstances may affect their repayment capability. * Limited seasoning in non-microfinance portfolio With a vintage of close to three years, Ujjivan SFB has a limited track record in non-microfinance segment (excluding micro individual loans) that forms about 22% of the total loan book as on December 31, 2019. The bank, since transition, has diversified into affordable housing and MSE segment which formed 10% and 7% of the AUM as on December 31, 2019, respectively. The bank's affordable housing portfolio has attained a vintage of 4 years now however, the scale of it remains small. MSE loans, a relatively newer book, have not seen one complete cycle yet. Therefore, its ability to maintain sound asset quality in new segments while managing growth and profitability across economic cycles remains to be seen. |
| Liquidity Strong |
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Ujjivan's business model provides it with an inherently positive asset-liability maturity profile, driven by shorter tenor of advances than that of liabilities. Over the 12 months ending December 31, 2019, the bank's liability profile has evolved favourably with the share of longer tenured liabilities (having a maturity of 1 year or more) increasing to about 64%. In the interest of efficient liquidity management, the bank has considerably reduced its reliance on certificate of deposits from >50% in December, 2017 to sub 10%, two years later. Ujjivan reported an excess SLR of about 5.4% on December 31, 2019, and is expected to continue maintaining adequate buffer in liquidity coverage ratio (LCR), sufficient cash and bank balance, unutilised bank facilities, and refinance lines from financial institutions to meet outflow over the next 12 months. Basis its SLS dated December 31, 2019 ' assets maturing over the next 12 months (at 95% efficiency) were 1.2 times of liabilities maturing over the same period. More so, its scheduled bank status would allow it to access to liquidity adjustment facility, marginal standing facility, and interbank markets which would extend additional comfort to its liquidity profile. |
| Rating Sensitivity factors |
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Downward Factors: * Moderation in asset quality in the scheme of growth across non-microfinance segments, leading to potential weakening in profitability and capital position. * Inability to garner retail deposits leading to its share in the total deposit base falling to, and remaining below 30% for a prolonged time. About Ujjivan Small Finance Bank Ujjivan, commenced its SFB operations in February 2017 by transfer of assets and liabilities of Ujjivan Financial Services Limited (Ujjivan Financial Services). The holding entity, Ujjivan Financial Services, was set up in 2005 by Mr Samit Ghosh with focus on the urban sector. As on December 31, 2019, Ujjivan had 574 branches. |
| Key Financial Indicators (Ujjivan SFB) | ||||||||||||||||||||||||||||
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
| Annexure - Details of Instrument(s) | |||||||||||||||||||||
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Links to related criteria |
| Rating Criteria for Banks and Financial Institutions |
| CRISILs Criteria for rating short term debt |
| For further information contact: | ||||||
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