Ujjivan Small Finance Bank Lowers Fiscal 2025 Guidance As Stress Builds Up

Ujjivan Small Finance Bank Ltd. has lowered its fiscal 2025 loan growth guidance by 500 basis points as it sees stress building up in some pockets of its business.

According to an analyst presentation the bank made on Friday, the lender expects the loan book to grow by 20% year-on-year by March 31, 2025. In its fourth quarter results announcement made just a month ago, the expectation was for a 25% loan growth.

Alongside the lower loan growth target, Ujjivan Small Finance Bank's latest guidance for FY25 also estimates a return on equity of 22%, about 200 basis points lower than the estimates made in May. Credit costs for the bank are expected to be at 1.7% in the current financial year, according to the latest estimates. This compares to the 1.4–1.5% credit cost estimated earlier.

"It (previous guidance) was (issued) just five weeks ago. But at this time, we have done a thorough review of our portfolio and have also received data from the CRIF (Prismatic Report). We're seeing stress in some pockets for the industry. This is why we have lowered our guidance," Ittira Davis, managing director and chief executive at Ujjivan Small Finance Bank, told NDTV Profit over the phone on Sunday.

Stress is visible in certain regions like Punjab, Haryana, Souther Tamil Nadu, and Kerala, according to Davis. The microfinance industry is facing delays in repayments from these regions. Ujjivan Small Finance Bank has performed better than the rest of the industry on a like-to-like basis.

For the microfinance industry, the CRIF Prismatic report notes that portfolios at risk in loans, which have been on the books for over 18 months, stood at 1.64% across India. In comparison, Ujjivan Small Finance Bank's portfolio at risk in this category of loans was 0.84% as of March 31, 2024.

In Punjab, CRIF estimates that the portfolio at risk for 18-month-old loans was at 9.11%, compared with Ujjivan Small Finance Bank's 1.36%. For loans in Haryana, the ratios stood at 3.49% and 1.11%, respectively.

The first two quarters of FY25 are likely to be slow owing to the build up of stress, Davis said. "It will be the second half of the year, by when the budgetary spending starts trickling down to the lower end of the economy," he said.