Detailed Narrative
Macroeconomic Environment and Outlook
The quarter saw continued uncertainty from the geopolitical situation in West Asia. While global energy prices softened, weather-related uncertainties due to El Nino pose a risk to H2 economic activity, particularly for kharif crops. Despite these challenges, high-frequency domestic economic indicators showed stability. The RBI maintained the policy repo rate at 5.25% and recalibrated real GDP growth for FY27 to 6.6%, with inflation projected at 5.1% for the full year. The banking sector remains resilient with healthy credit demand and steady deposit mobilization.
Robust Business Growth and Diversification
Ujjivan Small Finance Bank delivered a quarter of steady business growth. The total deposit book grew 25% year-on-year to INR 48,129 crores, with CASA deposits increasing 37.8% year-on-year to INR 12,930 crores. The gross loan book expanded by 28.9% year-on-year and 5.5% quarter-on-quarter to INR 42,903 crores. The bank's strategy to diversify its loan portfolio is on track, with the secured book now constituting 50.4% of the total, growing 42.7% year-on-year to INR 21,638 crores.
Asset Quality and Profitability Highlights
Asset quality remained stable, with GNPA reducing by 10 basis points to 2.17%. The Provision Coverage Ratio strengthened to 85%, providing adequate coverage. Bucket X collection efficiency stood at a healthy 99.68%, and overall collection efficiency (current plus overdue) was 98.4%. Profit after tax for the quarter was INR 317 crores, translating to a Return on Assets (ROA) of 2.2% and Return on Equity (ROE) of 18.2%. Credit costs for the quarter were INR 127 crores, with write-offs at INR 72 crores.
Strategic Initiatives and Capacity Building
The bank operationalized 38 new branches in Q1 FY27, contributing to a total of 814 branches. Investments in capacity building, including branch expansion, branding, and tech/analytics, have commenced, with INR 250 crores planned for the full year. New product offerings like unsecured Fast Track loans (digital), pre-owned cars, and lending to mid-corporates have been introduced. The MSME product suite has also been expanded with purchase invoice discounting, and the co-branded credit card is in the testing phase.
Funding and Liquidity Management
In a tight liquidity scenario, the bank maintained a comfortable CD ratio and effected rate increases in June to align with ALM outcomes. The cost of funds continued its downward trajectory, standing at 6.86% for the quarter. The bank maintains sound liquidity health with a Liquidity Coverage Ratio (LCR) of 132%. Efforts to enhance the value proposition for deposit customers, including the high net worth program 'Ivory' and mutual fund distribution, are yielding encouraging results. The bank is also utilizing newly created capacities on the forex side by offering attractive FCNRB rates.
Segment-wise Loan Book Performance
The micro banking book grew 16.8% year-on-year to INR 21,371 crores, with disbursements up 16.4% to INR 4,581 crores. Affordable housing and micro mortgages saw strong growth, with the book increasing 40.8% year-on-year to INR 11,210 crores, maintaining stable GNPA at 1.2% and 0.6% respectively. The MSME portfolio grew 54% year-on-year to INR 3,470 crores. Gold loans were a strong growth driver, reaching INR 1,020 crores (up 248.6% YoY), and the vehicle loan book stood at INR 1,036 crores (up 85.1% YoY). New business lines (gold, vehicle, agri) contributed 7% to the gross loan book and 9% to Q1 disbursements.