Financial Year 2016-17 is a momentous year in the annals of Ujjivan's organizationalhistory with a successful IPO in May 2016 and a spectacular launch of Ujjivan SmallFinance Bank in February 2017.
There were 72 competing players who sought for a "Small Finance Bank (SFB)"licence from the Reserve Bank of India and we made it to the list of ten successfulapplicants who were accorded "in principle" approval by RBI for setting up theSFB. It has been a great transformational journey and I will share some thoughts on this.
From modest beginnings in 2004 your company has emerged as one of the largest MFIs inthe country in terms of geographical spread with pan India presence through 470 branchesacross 24 states and 209 districts and a loan book of around Rs 6500 crore serving 36lakh customers. We have not swerved from our mission and remain totally dedicated to servethe financially unserved and underserved community. We have consistently earned customeraccolades by forging strong meaningful & empathetic relationship with our customersthanks to our dedicated front line and service quality teams. As a service entity we arealways conscious that human resources are our greatest assets and our organizational humanresources policies and practices mirror this. With humility I may share that Ujjivan hasbeen recognized consistently as one of the Best Places to work ranking 3rd in2016 by The Great Place to Work Institute in Collaboration with The Economic Times.
Why did we become a Bank may be the upper most question that may linger in yourminds. Lack of access to savings is often referred to as the "forgotten half of ruralfinance". More than the "loans" the poor need a trusted formal savingchannel shorn of rigidities to keep their savings. Savings should precede loans. Due toregulatory constraints hitherto as a non-banking finance company Ujjivan was notpermitted to accept deposits from customers. In our broadened role as a bank we canprovide savings products apart from loans causesand other financial products with whichtwo benefits
Firstly our access to savings from customers and public at large will reduce ourfunding cost which in turn could benefit the borrowing customers by way of lowerinterest. Secondly once our customers inculcate savings habits they would be able tobetter manage their cash flows and avoid over-indebtedness and consequent debt traps.
Why two separate entities "Ujjivan Financial Services Limited" and"Ujjivan Small Finance Bank Limited" (hereinafter referred to as"USFB" or the "Bank") could be the other question that may arise. Oneof the key regulatory requirements for setting up a small finance bank is that thepromoters/promoter group should at least hold 40 per cent of the paid up capital of thebank which should be locked in for a period of five
Rationale for this regulatory prescription is possibly to ensure "stability in theshareholding of the bank" in the initial years of formation. As Ujjivan did not haveany promoter/ promoter group we opted for the "Holding Company Structure" andtransferred our operational business undertaking comprising of the assets and liabilitiesto "Ujjivan Small Finance Bank" through a slump sale. Post formation of UjjivanSmall Finance Bank Ujjivan Financial Services Ltd. the Holding Company will beregistered with the RBI as a NBFC-Core Investment Company. As the holding Company it willexercise its oversight function provide support and funding within the legallypermissible ambit thus managing its investment in the bank.
Mr Samit Ghosh assumed the leadership mantle of the Bank as Managing Director &Chief Executive of the Ujjivan Small Finance Bank with the prior approval of the RBI. MsSudha Suresh formerly the CFO of the Company assumed charge as the Managing Director andCEO of your Company.
The year threw up major challenges the impact of which will spill over to FY 2017-18.Transitioning your Company to a Bank was and continues to be a major challenge. Mr SamitGhosh MD & CEO of the Bank has detailed these in his message in this Annual Report.
The major disruptive event we faced during the year perhaps in our decade longjourney was "demonetisation". While the move will yield positive benefits tothe economy and the public at large in the medium term the immediate negative fallout hasbeen on a vulnerable sector like microfinance business. Given the fragile cash flows ofour customers their income and business activities were severely affected across variouspockets. The resultant impact has been lower collection efficiencies and increase inPortfolio at Risk. Closely on the heels of demonetisation loan waivers announced by somestate governments for agricultural borrowers raised the expectations of microfinanceborrowers too. Relentless efforts are on to educate and persuade the borrowers to loansadhere to repayment schedules. In justifiable are restructured. There has been positivesupport from the industry network and Governments through appropriate media announcements.Loan collections are picking up gradually and we expect the situation will improve in themonths following.
The Company closed the financial year 2016-17 with a total income of Rs.1397.6 crore agrowth of 36% over the previous year. It achieved a profit after tax of Rs.207.6 crore anincrease of over 17% when compared to the PY. The Board has declared a dividend of 8%(subject to the approval of shareholders).
The Company will support the planned growth of the Small Finance Bank in achieving itsmission of becoming the best institution to provide financial services to the unservedand underserved customers and transform to a mass market bank. years.
We thank you for your immense support and look forward for your continued trust infuture.
With Best Wishes