Jana Small Finance Bank Hopes Sector Revival To Bring On A Better Third Quarter

The worst phase for the microfinance sector is over and the third quarter of the current financial year will be better, according to Jana Small Finance Bank Managing Director and Chief Executive Officer Ajay Kanwal.

Bangaluru-headquartered Jana Small Finance Bank Ltd., which started as a microfinance institution and still operates in the sector, had released its earnings for the second quarter on Monday.

The lender reported a 21.3% decline in its net profit at Rs 96.7 crore versus Rs 123 crore in the same quarter last year.

“The peak of the credit cost has already passed in Q2. It will get better in Q3 and further better in Q4,” Kanwal told NDTV Profit.

The bank's gross non-performing assets grew to 2.97% in Q2 from 2.62% in Q1, led by stress in the MFI sector.

“Even though it (unsecured loans) is a small book for us now, we are still part of the (MFI) industry and have seen impact. That has caused an elevated credit cost and most of this was unanticipated,” Kanwal said.

The bank's CEO said the stress in the MFI industry is man-made, and not externally induced due to events like the Covid-19 pandemic, as nothing major has happened in the last six months.

“The only thing I can say is that there is an over-leverage of customers through a variety of institutions and there is muted growth in the industry which means people have become very careful. People have realised that the path of growth where one doesn’t follow discipline can lead to a problem for all, which is why I think Q3 will be better,” he said.

While emphasising that the worst was over for the MFI sector, Kanwal posed a bigger question about how the industry dynamics would shape up in the future.

“This means all of us have to walk back, and rework our models at least if you are a large player,” he said.

The elevated credit cost will also mean slower profit for the lender this financial year, Kanwal said. “We had given a PAT guidance of 30–40%, but now we are fighting for a 30% growth. Doing 40% now is a bit more challenging with the elevated credit cost,” Kanwal acknowledged.

Shares of Jana Small Finance Bank fell 12.18% on Thursday to touch an intraday low of Rs 454.75 apiece versus its previous close of Rs 510.15 on the NSE.

The stock ended the session 10.42% lower at Rs 457 as compared to the benchmark Nifty 50’s decline of 1.25%.