Ujjivan expects modest growth on way to becoming a small bank

MUMBAI: Bengaluru-based micro finance institution Ujjivan Financial Services, which will hit the primary market on April 28 with a Rs 900-crore IPO, expects moderate growth in the next couple of years as it transitions into a small finance bank.
“The RBI has told us for the first two years that we can have a moderate growth because focus should be more on managing the transition very carefully because the nature of business is changing completely,” Samit Ghosh, MD, Ujjivan told ET.

The company will be focusing on growing its individual loan portfolios, mainly the micro SME funding and the housing segment. Ghosh said that Ujjivan would deter from competing with retail banks and focus more on the unserved and underserved clientele.

“The retail liabilities are going to be new,” Ghosh said. “The second thing is we have a very wide network of branches that will give us a footprint on which we can do remittances and third-party insurance products.” Ujjivan will have a massive challenge to increase its geographical footprint in unbanked areas. As per RBI’s regulations, 25% of small finance bank branches have to be in unbanked areas.

At present, the company does not have a single unbanked rural branch. “It’s not that we will convert all the 470 branches to the bank branch immediately,” Ghosh said. “We will do it in a phased manner, but unbanked rural is going to be a significant number.”

Ghosh also said that small finance banks with a proven track record will be more successful than payment banks. “For a small finance bank, it is not a startup situation, so the chances of such banks succeeding are much higher compared to a payment bank which is starting from scratch,” Ghosh said. “Startups normally have a higher mortality rate.”