Ujjivan Small Finance Bank witnessed a 7.56% drop in its shares during intraday trading, reaching a 3-week low of ₹44.70 per share. The bank’s management revised its loan growth guidance for FY25 to around 20%, down from the earlier range of 20%-25%. Additionally, the credit cost guidance was increased to 1.7% from the previous 1.4%-1.5%.
The adjustment was made in response to increased stress in the microfinance sector in states like Punjab, Haryana, Gujarat, UP, and Kerala. The bank has decided to slow down disbursements and focus more on collections in these hotspot areas.
The microfinance segment is expected to face higher credit costs in FY25, particularly in Punjab, Haryana, Gujarat, and UP. Factors contributing to this stress include the Karza Mukti Andolan in Punjab and Haryana, an influx of lenders in Gujarat, and rising credit costs in certain districts of UP.
To offset the slowdown in group microfinance loans, the bank plans to focus on individual loans and the affordable housing segment. It aims to increase the share of secured loans to 40% from the current 30% in the medium term.
The bank is also transitioning group loan customers to individual loans, which will reduce interest costs for customers, improve services, and create cross-selling opportunities. In addition, the bank has started offering gold and vehicle loans to boost secured assets and enhance margins.
Despite industry challenges, the bank’s management remains optimistic about meeting RBI’s criteria for a universal banking license. This license would provide various benefits, including freeing up capital, reducing PSL requirements, and removing conditions related to small-ticket loans.
Overall, the bank’s outlook remains positive, with reasonable valuations and expected returns over the coming years. Investors are advised to consult certified experts before making any investment decisions.