Fundamental Analysis of Ujjivan Small Finance Bank

Fundamental Analysis of Ujjivan Small Finance Bank: The concept of Small Finance Banks (SFB) was introduced in India in 2015. It was done with the aim of promoting financial inclusion for the unbanked and underbanked population. This population is situated generally in tier-3 & tier-4 areas.

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An SFBs main aim is to develop a market to promote a credit market to provide loans to MSMEs, among other lending services. SFBs also promote savings by providing a higher interest rate compared to full-service banks like HDFC and Kotak. In this article on fundamental analysis of Ujjivan Small Finance Bank.

Fundamental Analysis of Ujjivan Small Finance Bank

We will begin with understanding the services offered by the Bank, its Net Interest growth, and its Deposits & assets growth. Then we will look at the return generated by the Bank towards its shareholders, before finally reaching a conclusion.

Company Overview

Ujjivan is a small finance bank based in Bangalore. It commenced operations on 1 February 2017. It is licensed under the Banking Regulation Act, to carry out small finance bank business. Ujjivan Financial Services is its Parent Company holding an 80 percent stake in the bank.

Ujjivan SFB provides a range of products and services such as savings accounts, current accounts, fixed deposits, recurring deposits, Vehicle Loans, MSE Loans, Housing Loans, Micro Loans, Home Loans, and Small Business Loans. It also offers internet banking, phone banking, and mobile banking facilities to customers. 

Along with accepting deposits and providing loans, the banks also promote third-party Non-Banking services, like insurance. The Company we will be analyzing has already ensured 52.55 Lakh Lives.

As of FY23, Ujjivan SFB caters to about 76.9 Lakh customers, through 629 Banking outlets and 517 ATMs. It acquired around 10 Lakhs customers, primarily in MicroBanking and Housing. On the liability side, the Bank’s retail branch banking has been adding around 70,000-75,000 customers every quarter.

Industry Overview

The Reserve Bank of India (RBI) started tightening its monetary policy at the commencement of FY23, limiting the damages caused by foreign capital outflows, rising inflation, and a weakening currency. The RBI hiked policy rates by 250 bps to 6.5% during the year.

Despite that, the banking sector in India faced good strong demand for credit. Credit to agriculture and allied activities rose by 15.4% (y-o-y) in March 2023 vs. 9.9% a year ago. 

The Credit growth of medium industries was 19.6% as against 54.4% a year ago. Credit to micro and small industries registered a growth rate of 12.3% in March 2023 (23.0% a year ago). 

Within the industry, credit growth increased for metal & chemical Industries, petroleum, and other coal-based products. The Food Processing, Infrastructure, and Textile industries saw a decline in credit requirements. Credit growth in the services sector accelerated to 19.8% (y-o-y) in March 2023 from 8.7% a year ago.  

Personal Loans registered a growth of 20.6% (y-o-y) in March 2023 compared to 12.6% a year ago, primarily driven by Housing Loans. The credit market for these loans remained strong followed by an equivalent growth in deposits.

The rising interest rates have led to an increase in deposits by 18bps, 17bps, and 23bps across Public sector banks, Private Sector Banks, and Scheduled Commercial Banks across the country, surpassing Pre-Pandemic Levels.

Ujjivan Small Finance Bank – Financials

Net Income & Net Profit Growth

Ujjivan’s Net Interest Income grew by 52%, as the Bank reported Net Interest Margins (NIM) of 9.5%.

SFBs are able to thrive in these markets by charging comparatively higher interest rates on these loans, which is reflected by such high NIM. Ujjivan has been able to grow its Interest Income at a CAGR of 24.95% in the past 5 years.  

Net Profit of the Bank recovered from losses of Rs. 415Cr. In FY22 returning a profit of Rs. 1,100Cr. In FY23. The Loss in FY22 came as the Company set aside provisions for its NPAs. However, the Company was able to turn a profit along with reporting low NPAs.

Deposits & Advances

Deposits of the Bank have been growing by 36.39% on a 5-year CAGR basis. These deposits grew by ~40%, from Rs. 18,292 Cr. in FY22 to Rs. 25,538 Cr. in FY23. Advances also have been growing at a quick pace of ~19% CAGR in the past 5 years, which grew by 35%, from Rs. 16,303 Cr. to Rs. 21,290 Cr. in FY23. 

The Bank’s Current Account Savings Account (CASA) Balance is about Rs. 6,744 Cr. with a CASA ratio of 26.41%. The higher the CASA ratio, the better as CASA accounts are acquired at lower interest rates, while other term deposits are expensive. The ratio has grown from 10.62% in FY19 to ~26% in FY23. 

Ujjivan SFB is majorly into micro banking, providing small credit facilities with an asset base of 17,401 Cr. Serving 60.79 Lakh customers. It currently provides Housing Loan facilities to about ~37,000 customers. It has provided 16,334 customers with MSME loans worth Rs. 1,593 Cr.

Non-Performing Assets (NPAs)

There is a massive 450 bps fall in the Gross Non-Performing assets (GNPA) of the Company, dropping from 7.1% in FY22 to just 2.6% in FY23. Assets, such as advances issued by the bank whose dues are not paid in 3 consecutive months would be termed as GNPAs.

NPAs for whom adequate provisions are not set off from the Profits are reported as Net Non-Performing Assets. The NNPA of Ujjivan for FY23 remained in the safe category of 0.04%, which fell from 0.6% in FY22.  

The sudden spike of NPAs in FY22 & fall in FY23 remains a concern as they highlight the quality of loans issued by Ujjivan. Although they bear high-interest rates, they come at the cost of high risk as defaults, which can hinder profitability like FY23.

Return Ratios

In FY23, the Company went on to report its highest-ever Return on Equity at 33.75%, which grew from -14.98% in FY22. RoE above 25% is always a good sign of a fundamental stock. Although the 5-year average for Ujjivan lies in the 9.5% category.

The Bank was able to generate ~4% returns on its average assets. It is important to note the returns generated against the deposits and other assets to understand the effectiveness of a Bank’s Operations. The 5-year average lies in just the 1.18% category, which requires improvement.

Future Outlook Of Ujjivan Small Finance Bank

  • The management focuses on building a technologically driven and customer-focused ‘mass-market’ bank. The Indian economy is currently experiencing a significant transition into the middle class. These families are evolving and creating demand for better financial inclusion. 
  • The Bank aims to capitalize on this opportunity by targeting this segment, which is not deeply penetrated by its larger peers. This will result in the upliftment of society as a whole, especially in rural areas. 
  • Ujjivan set aside Rs. 400Cr. CAPEX on building and developing a Tech platform for the Bank. These will help build Analytics underwriting, Loan origination System (LOS) for secured products, and other API software to help MSME customers integrate their financial needs within the business.

Key Metrics Of Ujjivan Small Finance Bank

Lets take a quick look at the Key Metrics of Ujjivan Small FInance Bank


After learning about the operations of Ujjivan Small Finance Bank, and taking a good look at its Income we understand that the Bank reported a solid year, in terms of earnings & low NPAs. The Bank has really been growing at a great pace, in terms of income, deposits, and advances.

This makes us question if the Bank can truly sustain these results and continue to perform in the coming years or will the rate of growth slow down to the level of Full Service Banks. What do you think? Let us know in the comments below.

Written by Nasir Hussain

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