Losses, surge in bad debts and departure of high-level staff shake up Ujjivan Small Finance Bank

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The COVID-19 pandemic and lockdowns have put a strain on the microbank industry, with Ujjivan Small Finance Bank witnessing losses, a sharp rise in non-performing assets (NPAs) and portfolio at risk, and resignations high level regarding the differences in provisioning against bad debts. .

The bank’s shares fell 19% to Rs 19.70 on BSE on Friday after CEO and CEO Nitin Chugh’s resignation was announced on August 19. A week earlier, Harish Devarajan had resigned from his post as additional (independent) director. This was preceded by the bank’s financial results for the quarter ended June 2021, when they revealed the deterioration in financial performance. Previously, B Mahapatra had resigned as chairman of the bank in February 2021 within 10 months.

The bank, promoted by Ujjivan Financial Services founder Samit Ghosh, began operations in February 2017. It reported a loss of Rs 233 crore for the June quarter compared to a profit of Rs 55 crore ago. a year. What has shaken the markets and analysts is the deterioration in the quality of the bank’s assets with gross NPAs reaching Rs 1,374 crore (9.8% of advances) in June of this year, against 139 crore. of Rs (1%) last year. Its portfolio at risk rose to 30.8% in June from 1.8% last year. This means that up to Rs 4,084 crore of his loan portfolio is at risk.

According to a member of the bank’s board, who declined to be identified, the problem started a year ago when Covid hit the country and customers reneged on their refunds. “There was no adequate provisioning during the first two quarters of fiscal 21. There were differences of opinion between the promoter (Ujjivan Financial Services) and the bank’s board of directors on the question of provisioning. The then president, Mahapatra, resigned. Then there was a higher provisioning in the third quarter, ”he said.

“Things are normalizing now. Collections have improved and the provision coverage ratio of 75 percent is one of the highest in the industry and the bank is well capitalized at 26 percent. The situation will return to normal if the third wave does not occur and the customers of the bank are vaccinated, ”said the director of the bank. Earlier this month, while announcing the results, Nitin Chugh, chief executive and outgoing CEO, said: “The onset of the second wave of Covid and the resulting restrictions and lockdowns hit the industry, in particularly the microbank sector which has faced severe stress. Our business and collection volumes were affected due to movement restrictions, resulting in a moderate overall performance in the first quarter of fiscal 22. ”

The bank’s share price has fallen 56% from its 52-week high of Rs 44.50 on BSE.

The nomination and remuneration committee of the board of directors last week appointed Samit Ghosh, former managing director of Ujjivan Financial Sudha Suresh, former Andhra Bank CMD BA Prabhakar and Ravichandran Venkataraman as additional directors at effective August 20, 2021. While Prabhakar is expected to become the chairman of the bank, Carol Andrade is expected to be appointed Special Duty Officer by the bank until a new chief executive and CEO is appointed, sources said.

“Chugh’s resignation came as a surprise to us. He was under a lot of pressure and the older team that created the bank also left the bank, ”said an official from Ujjivan Financial Services, the bank’s promoter. Samit Ghosh had previously been rejected by shareholders for the post of Managing Director and CEO of Ujjivan Financial Services, but continues to be its chairman.

“Ujjivan SFB’s profits were low, mainly due to an increase in delinquencies leading to soaring credit costs. Net interest income was marred by a slippage-driven interest reversal. Up to 150,000 customers who were NPAs in June 2021 started paying in July and saw overall upgrades of Rs 300 crore excluding restructuring, ”a report from Centrum Broking said.


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