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00:00 We have Govind Singh, who is the MD, CEO at Utkarsh Small Finance Bank, who's joining us now.
00:05 Firstly, welcome, sir, to NDTV Profit. It's good having you here.
00:10 Thank you. Thank you very much for having me here. Right. So I want to first try and understand
00:17 the kind of risk that we're seeing currently when it comes to MSME as well as MFI lending.
00:27 You know, the RBI is coming down heavily from a regulatory standpoint, especially on unsecured,
00:34 especially on maybe not on MSME in particular, but more on the unsecured side of things.
00:40 But a lot of that is interrelated. Are you seeing absolutely any risk here at the moment in this particular space?
00:50 So, you know, we are when we see the ground reality in terms of MSME and you are also talking about the microfinance.
00:56 So these two are, you know, are hardcore income generation loans.
01:00 So wherever RBI has concerned, those are more of a consumer loans.
01:03 I mean, where they have issue or hardcore unsecured consumer loans.
01:07 We are referring to where these are the loans given for livelihood or for income generation.
01:11 These may be business loans. So our you know, the way we are seeing the markets across,
01:16 you know, we are in 26 states and you do, as you mentioned, and we have a heavy presence in some of the key states like
01:22 Bihar, Jharkhand and Madhya Pradesh, Uttarakhand and some of the other markets.
01:27 So we are not seeing any, you know, you can say negative traction, negative news as far as livelihood linked with loans are concerned.
01:35 So and we don't foresee any challenge. And in fact, our collections and overall credit take credit offtake has gone up in both the segments.
01:44 I'm talking of MSME where largely these are the business loans and the microfinance where these are the livelihood loans
01:50 given to specific segments of the society. So there has been a good traction and it continues to be there.
01:58 Point taken, sir. But with regard to retail, I see a retail book has shaped up fairly quickly.
02:03 You've grown 10 percent plus sequential in retail in December 23.
02:08 Is that largely MSME or what's the kind of breakup there and what's the unsecured portion within your entire book?
02:17 First, I'm talking about retail specifically and second, I'm talking about your book at large.
02:21 What's the unsecured like? Yeah. So in retail, it is largely what we talk of business loan or MSME segment, you know,
02:28 maybe lower segment, lower part of MSME segment, because we are able to give 10 lakh, 20 lakh, 15 lakh, 20 lakh, 25 lakh type of loans.
02:35 And so this segment we started once we became bank and now it's almost seven years.
02:40 So it's a fairly, you know, you can say decent run up for us during the last seven years.
02:44 It took a little while to reach that level, you know, create our own teams, product processes and other things.
02:50 And but last two to three years, you must have seen there is a good traction and largely these loans are secured loans.
02:56 So for us in terms of MSME, our unsecured portion will be less than 10 percent.
03:01 So hardly any unsecured portion is the MSME loans. These are backed by hard collateral.
03:06 So and overall, overall, if you look at the bank level, so obviously we have a large microfinance book that's almost 60 odd percent.
03:13 So that's our unsecured book. And beyond that, it is very, very limited.
03:17 So our currently we are in terms of secured, we almost 65 percent unsecured and 35 percent plus is secured.
03:23 And as I mentioned, largely microfinance and those loans are unsecured.
03:28 Beyond that is a very, very small portion, which is unsecured loans for us.
03:32 Sure. And the microfinance book, is it? I know that it's unsecured,
03:36 but what kind of buffers are you keeping when it comes to asset quality in this book?
03:43 Yes. So one important part I want to mention that, you know, it is it is not largely 100 percent livelihood loans only.
03:50 These are no consumer loans or any such loans in our microfinance book.
03:54 So these are these are livelihood loans of their business loans only from that angle.
03:59 The business may be a variety of business so that that may differ.
04:02 And especially we are in more and rural and semi-urban areas. A lot of activities are there in that segment.
04:07 So that keep happening. So that's our, you know, largely the segment part.
04:12 We have seen some time in microfinance, you know, the challenges may be there.
04:16 So and based on our past experience, we started we decided that we should have a floating additional floating provision,
04:22 which is you can say focus in microfinance book.
04:25 So this year we'll have around one point five percent of our last year's balance is a loss or outstanding of microfinance as a floating provision.
04:33 So this floating provision, you are aware that we cannot use this floating provision unless we get a Reservoir of India approval.
04:38 So idea was to create a long term buffer for microfinance.
04:42 And as I mentioned, it has it will reach one point five percent at the end of this year.
04:47 And our broader plans are that we should continue to increase this segment, this amount,
04:52 so that whenever there are some issues, there is enough buffer available with us and that takes care of all the issues.
04:58 Sure. Point taken. And, you know, when it comes to how your margins are really shaping up,
05:03 I want to try and understand you've seen a bit of a margin uptake, in fact, in Q3.
05:09 Talk to us about what's happening there in Q3 specifically,
05:13 as well as talk to us about the larger deposit growth environment and where margins will therefore grow,
05:19 because there is plenty of chatter that the deposit growth environment will continue to get more and more difficult till Q1 FY25.
05:29 So our margins have been almost stable and as you mentioned that Q3, our margins were even better than Q2.
05:36 Q2 we had some issues in terms of, you know, the growth was much, much lower in Q1 and Q2 for us.
05:42 And it picked up in the Q3. So Q3 margins, you must have seen, name is almost nine point seven percent.
05:48 And our guidance has been that for the for Q4 also, it will remain the same trajectory.
05:52 I mean, in the range of nine point five to nine point seven. And, you know, even if you look at the medium term horizon,
05:58 we are confident that our margins will not be below nine percent. This will always be up about nine percent.
06:03 In spite of our insecure share is coming down and secured share is going up.
06:08 This will remain up what of nine percent. So that is the trajectory we have been seeing.
06:12 And we are getting a lot of operational efficiencies also because skills are going up.
06:16 So that's for sure. And in terms of overall deposit book, deposit book growth has been good.
06:20 In fact, we are in terms of liquidity. We have a very strong liquidity position today also.
06:24 And it has been our you can say, you know, one of the unique position, but with cash is we are never a borrower in money market.
06:31 You know, and we always keep surplus liquidity with us. So we have a good traction on the deposit part also.
06:38 And that is also reflecting our balance sheet for Q1, Q2 and Q3.
06:42 As far as the overall market for deposit is concerned, yes, it was a little tough for some time.
06:47 But as I mentioned, we are quite liquid and, you know, we don't have any specific requirement for, you know, for immediate future.
06:54 My sense is that this deposit, which is a little tight, may remain there in the month of March.
07:00 But later on next two to three months time, it should ease out.
07:03 We do expect that there will be a lot of government spending is happening. So money should flow, you know, to the markets.
07:09 So this tightness may be for a few months time, not more than that.
07:13 And we have enough avenues for that. And we have quite liquid, you know, as far as our position is concerned.
07:19 So we don't foresee any challenge as far as liquidity is concerned.
07:22 Or even increase in the cost of deposit also. We don't expect maybe 8 to 10 basis points in Q3 because of repricing of some of the deposits.
07:30 You know, because FDs are for two to three years time. That's the only reason.
07:33 There is no other reason for, you know, increase in the cost of deposit beyond this.
07:37 Sure. Point taken. Now, with regard to two quick questions I need to cover, because this is the last question I have.
07:43 I've just been alerted. With regard to provisions, we've seen an uptick in provisions.
07:48 Q1, Q2 versus Q3. Where is the pain being felt?
07:52 If you can give us that quick take and what what's happening in Q4 with regard to this particular segment?
07:58 And second, ROA is around 2.3 to 2.5 percent. Can we expect that to be reasonable?
08:04 Yeah. So on the credit cost part, we had mentioned in our guidance also, you know, it was a little elevated in Q3.
08:11 We had a lot of holidays and the collection of machinery got a little impacted during that period.
08:16 So because of that, there are small, you know, elevation in the credit cost.
08:20 And we had guided and it's absolutely on track. We do expect that our credit costs will come down in Q4.
08:25 And it should be in the range of 2 percent or so, you know, coming down from 2.6 to 2.7 percent.
08:31 For Q4, we are expecting a significant decline in the credit cost.
08:35 So that is that is visible and that is the way we have guided also.
08:39 In terms of our ROE and ROA, I think we have guided that our ROE will be in the 18 percent plus.
08:44 And that's again on track. And that is what is our guidance for not only for this year,
08:48 but for if you look at a medium term of one to two years time. And ROA has been in the range of 2.2 to 2.4 percent.
08:54 Again, it is on the same trajectory. I want to just, you know, clear that, you know, whatever guidance we had given,
09:00 all are on track and we don't foresee any surprises as far as the financial performance of the company is concerned.
09:06 Perfect. Thank you so much for that, Mr. Singh. It's good chatting with you.
09:10 Good getting all of that perspective from you with regard to Utkarsh.
09:13 Thank you.
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