Utkarsh SFB sets sights on universal banking transition in two years

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Utkarsh Small Finance Bank meets several criteria set out by the Reserve Bank of India for a universal banking licence, and the bank’s MD and CEO, Govind Singh, sees the lender achieving the universal bank status over next year or two.

The RBI on Friday (April 26) invited applications from small finance banks meeting specified criteria, including a minimum net worth of ₹1,000 crore, for becoming regular or universal banks.

Universal banks offer a wide array of financial services, beyond traditional banking, including investment, insurance, and other financial activities.

These are the edited excerpts:

Q. We have seen a discernible improvement in your asset quality across parameters, whether it’s the slippage, the gross NPAs, Net NPS. What led to that, is this a trend, will asset quality continue to improve, and what can you guide for in terms of gross NPAs, net NPAs, and slippages for next year?

A. When we had met after Q3 results, we had indicated that in October and November we had challenges in the ground in terms of a lot of holidays specially our geographies of UP and Bihar during Diwali, Dassehra and Chhat period. That impacted the collection efficiency or collection during that period. Once we are able to come out of the slippages, we are able to have better collections. And that has helped us in reducing our overall credit costs and improve the numbers across. We had guided around 2% credit cost including the floating provision we have been creating for last two years that costs close to 0.3-0.4% in the credit cost.

Our credit cost for next year is expected in the range of 2%. And the board has also guided us to increase our floating provision. So from 1.5% of March 2023 numbers, now it is 2% of March 2024 numbers.

Q. Any guidance on Gross NPAs and net NPAs?

A. NPA is already point 0.3%. So it will be almost, it might be negative, in fact, from that angle, and we expect around 30 to 50 basis points decline in the gross NPA also from 2.5, it will be in the range of 2.0-2.1 as far as gross NPA is concerned.

Q. In terms of business momentum, you have seen smart growth. The numbers are looking very robust. Even on the deposit side, the growth is around 15.5% quarter on quarter, Disbursements up 26%, quarter on quarter, 37% year on year. Are you likely to maintain this kind of momentum? Give us more idea about your target for overall deposit growth for this year, and the loan growth as well.

A. We do expect that this trajectory of growth will continue this year. Normally, quarter one is a little slow for all the banks report, but overall for this year, our expectation is that our advances growth on an expanded base will be more than 30%. And deposit growth will be 3% to 5% higher than advances growth in the range of 33 to 35% for this year. And it’s important for us reduce our CD (credit deposit) ratio from current level by another 3-4% this year.

Q. Where is your CD ratio right now? And you said you want to come down by three 4%? So what is the targeted CD ratio you’re looking at?

A. It’s in the range of 94-95%. It has come down from almost 100% plus till Q3, it has come down below 95%. We should be in the range of 91% or so when we close FY25. That’s the aim right now.

Q. Okay, just a word on margins as well. Your NIMs (net interest margins) are at 9.9%. In fact, not too many financial entities have managed to show an expansion in NIMs in this kind of rates environment. What is the expectation on cost of funds and margins for the year?

A. Cost of funds were in the range of 8% or so for last few quarters. There is not much increase in the cost of funds, maybe around 10 basis point. What has happened is, our entire deposit base has got repriced, other than maybe less than 15% deposits, which are yet to be repriced. So our cost of funds may not go up from here, maybe 10 basis points, not more than that for this year. In fact, if the markets become a little softer, our cost of fund data and deposits will also go down from here.

On NIMs, 9.5% because we had an exceptionally good quarter four. But on a long term basis also, our NIM will be above 9% in spite of our proportion of secured asset book increasing significantly on a year on year basis. We expect it above 9% in the next two to three years.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow