The COVID-19 pandemic and lockdowns have put severe stress in the microbanking sector with Ujjivan Small Finance Bank witnessing losses, a sharp rise in non-performing assets (NPAs) and portfolio at risk and high-level resignations over differences in provisioning against bad loans.
On Friday, the bank’s shares fell 19 per cent to Rs 19.70 on the BSE after it announced the resignation of its MD & CEO Nitin Chugh on August 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 the deteriorating financial performance. Earlier, B Mahapatra had quit as Chairman of the bank in February 2021 within 10 months.
The bank, promoted by Ujjivan Financial Services founder Samit Ghosh, had started operations in February 2017. It reported a loss of Rs 233 crore for the June quarter when compared to a profit of Rs 55 crore a year ago. What has upset the markets and analysts is the worsening asset quality of the bank with gross NPAs shooting up to Rs 1,374 crore (9.8 per cent of the advances) in June this year from Rs 139 crore (1 per cent) last year. Its portfolio at risk has gone up to 30.8 per cent in June from 1.8 per cent last year. It means as much as Rs 4,084 crore of its loan portfolio is at risk.
According to a board member of the bank, who did not wish to be identified, the problem started a year ago when Covid hit the country and customers reneged on repayments. “There was no adequate provisioning in the first two quarters of FY21. There were differences of opinion between the promoter (Ujjivan Financial Services) and the bank’s board on the issue of provisioning. The then Chairman, Mahapatra, quit. Then there was higher provisioning in the third quarter,” he said.
“Things are now normalising. Collections have improved and the provision coverage ratio of 75 per cent is one of the highest in the sector and the bank is well capitalised at 26 per cent. The situation will be back to normal if the third wave doesn’t happen and the bank’s customers get vaccinated,” said the director of the bank. Earlier this month, while announcing the results, Nitin Chugh, outgoing MD & CEO, said, “The onset of the second Covid wave and consequent restrictions and lockdowns lashed the industry, especially the microbanking sector which faced a severe stress. Our business and collection volumes were affected due to the restrictions on movement, resulting in a subdued overall performance in Q1 of FY22.”
The bank’s share price has fallen 56 per cent from its 52-week high of Rs 44.50 on the BSE.
The nomination and remuneration committee of the board of directors last week appointed Samit Ghosh, former Ujjivan Financial MD Sudha Suresh, former Andhra Bank CMD BA Prabhakar and Ravichandran Venkataraman as additional directors with effect from August 20, 2021. While Prabhakar is tipped to become the Chairman of the bank, Carol Andrade is expected to be appointed as Officer on Special Duty by the bank till a new MD & CEO is appointed, sources said.
“The resignation of Chugh was a surprise to us. He was under a lot of pressure and the older team which set up the bank also left the bank,” said an official of Ujjivan Financial Services, promoter of the bank. Samit Ghosh was earlier rejected by the shareholders for the post of MD & CEO of Ujjivan Financial Services, but continues as the Chairman.
“Ujjivan SFB earnings were weak mainly led by a rise in delinquencies resulting in credit costs’ spike. Net interest income was marred by interest reversal driven by slippages. As many as 150,000 customers who were NPAs as of June 2021 started paying in July and saw overall upgrades of Rs 300 crore excluding restructuring,” said a Centrum Broking report.