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Fundamental Analysis of Ujjivan Small Finance Bank

by Paul Morgan

Ujjivan Small Finance Bank is a small finance bank based in Bangalore, India. It was established in 2017 with the aim of promoting financial inclusion for the unbanked and underbanked population, mainly in tier-3 and tier-4 areas. This article provides a fundamental analysis of the bank, highlighting its services, growth in net interest and deposits, returns to shareholders, and future prospects.

Ujjivan Small Finance Bank offers a range of products and services such as savings accounts, current accounts, fixed deposits, recurring deposits, and various types of loans including vehicle loans, MSE loans, housing loans, micro loans, home loans, and small business loans. It also provides internet banking, phone banking, and mobile banking facilities to its customers. Additionally, the bank promotes third-party non-banking services like insurance.

The bank caters to around 76.9 lakh customers through 629 banking outlets and 517 ATMs. It has witnessed significant growth in its customer base, particularly in microbanking and housing loans. Furthermore, the bank has added around 70,000-75,000 customers every quarter through its retail branch banking. It has also recorded substantial growth in deposits and assets.

The banking sector in India has experienced strong demand for credit, particularly in the agriculture, micro and small industries, and services sectors. Ujjivan Small Finance Bank has capitalized on this demand and has been able to grow its net interest income at a compound annual growth rate of 24.95% over the past five years. The bank reported a net interest margin of 9.5%, indicating its ability to charge higher interest rates on loans.

In terms of profitability, Ujjivan Small Finance Bank recovered from losses in the previous financial year and reported a net profit of Rs. 1,100 crore in FY23. The bank has also witnessed significant growth in deposits and advances, with a CAGR of 36.39% and 19%, respectively, over the past five years. The bank’s current account savings account balance stands at Rs. 6,744 crore, with a CASA ratio of 26.41%.

One area of concern for Ujjivan Small Finance Bank has been the sudden spike in non-performing assets (NPAs) in the previous financial year. However, the bank has been able to reduce its gross NPAs from 7.1% in FY22 to 2.6% in FY23 and maintain a low net NPA of 0.04%. This improvement in asset quality is encouraging for the bank’s profitability.

In terms of return ratios, Ujjivan Small Finance Bank reported its highest-ever return on equity of 33.75% in FY23, indicative of its strong performance. However, its five-year average return on equity stands at 9.5%, suggesting room for improvement. The bank has been focusing on building a technologically driven and customer-focused bank to capitalize on the growing middle-class segment in India.

Overall, Ujjivan Small Finance Bank has shown strong growth in its operations, profitability, and asset quality. The bank’s focus on technological development and customer-centric services bodes well for its future prospects. However, it will be important to monitor the bank’s ability to sustain its growth rates and manage its asset quality effectively.

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