Ujjivan Small Finance Bank reported a 4% growth in its net profit. The lender also improved its profitability in the second quarter. On Monday, shares of the bank rallied at 6% as the bank announced collection efficiency has improved for the quarter.
The bank booked profit for the September quarter at Rs 96 crore. In the June quarter, it was Rs. 55 crore. Interest income grew by 21% to Rs. 470 crore for the quarter.The collection efficiency of the bank has improved significantly in the second quarter. It managed to collect 91% of the repayments. The management had earlier said that the collections would improve going forward.Improvement in the collection efficiency of small finance banks indicates that the small borrowers and businesses, who were most hit by the pandemic, are gradually coming back to normalcy.
The share of micro loans in the bank’s portfolio has reduced to 76% since 2017. For the September quarter, collections in micro loans improved by 88%, and non-micro loans also showed a significant increase. Improved repayments would increase the asset quality of the firm, which would lead to lower provisions and higher profitability.
On the profitability front, the management has made a structural and persistent move to reduce its operating expenses. The cost-to-income ratio has dropped to 56.6% in the September quarter compared to 69.5% a year ago.Going in line with the interim order of the supreme court, the bank has not recognized any NPAs since August 31, 2020. Net NPA is at 0.14 percent (Rs 19.08 crore) for the second quarter. If the SC order was not given effect, the net NPAs would have been at 0.3 percent. The bank has made ₹100 crores additional provision for COVID-19 related risks for the September quarter. Also, the gross advances of the bank grew 8% at Rs 13,890 crore.
Ujjivan SFB has given good results for the quarter that ended, but there are concerns regarding the growth of the bank. Loan growth continues to be weak as disbursements account for only half of pre-pandemic levels. Though there is a visible increase in the collection, a major issue is that the bank is not getting new customers. It is good news for the investors that the bank has delivered in asset quality and reduced operating expenses. But the lender to return to pre-covid levels for a better valuation.
