Ujjivan Small Finance Bank Completes Sale of Bad Loans Worth Rs 270 Crore

Ujjivan Small Finance Bank, an Indian small finance bank based in Bangalore, has completed the sale of non-performing assets (NPAs) and written-off loans worth Rs 270.35 crore. The transaction, conducted under the Swiss Challenge Method, fetched Rs 40.55 crore from an asset reconstruction company (ARC). The method, a competitive bidding process, allows private entities to submit counteroffers to initial bids. The sale was approved by the bank’s board on November 15, 2024.

Challenges in the Microfinance Sector

The decision comes against the backdrop of a challenging microfinance sector, struggles with customer overleveraging, repayment issues, and instances of borrowers using multiple fake IDs. This environment has pressured microfinance lenders leading to increased scrutiny and adjustments in operations.

Operational & Financials

In Q2 FY25, Ujjivan SFB reported mixed financial results. While total income rose 15.2% year-over-year to Rs 1,820.04 crore, net profit fell 28.89% to Rs 233.03 crore. The bank’s asset quality remained stable, with gross NPAs at 2.5% and net NPAs at 0.6%. However, management revised key forecasts due to sector uncertainties:

• Loan Book Growth Guidance: Withdrawn (previously 20%)
• Net Interest Margin (NIM): Revised downward from 9% to 8.6%
• Return on Equity (RoE): Guidance of 20% retracted

Performance

The bank’s shares saw over a 7% rise today, trading at  Rs 35.85, following the announcement. However, year-to-date, Ujjivan SFB’s stock has declined by over 41%. Over the past year, the stock has dropped from Rs 54.0 to Rs 34.8, marking a 35.5% decline.

All in all, the sale of Rs 270 crore worth of stressed loans through the Swiss Challenge method shows Ujjivan SFB’s approach to managing its balance sheet. 

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.