Can universal banking license boost Ujjivan SFB's fortunes? Analysts weigh

Ujjivan SFB share price surged today after FY30 roadmap revealed a shift to secured lending, and a possible universal banking license. Analysts see up to 36 per cent upside in stock

An ambitious growth road map stretching to 2029-30 (FY30) sent the shares of Ujjivan small finance bank (SFB) 8 per cent higher intraday on the BSE on Tuesday, before settling with gains of 7.4 per cent at ₹47.45 apiece.

 

The gains far outpaced the broader market, where the BSE Sensex and the NSE Nifty inched up only 0.39 per cent each.

 

The optimism around the stock stems from Ujjivan's detailed long-term strategy. The management described the period up to FY30 as a "high growth phase", with a decisive pivot toward a secured and diversified loan portfolio. Currently, secured loans account for 46 per cent of the bank's total book, but this is targeted to rise to between 65 per cent and 70 per cent.

 

 

Affordable housing and micro loan against property (LAP) will serve as the two primary growth engines, with both expected to expand at around 30 per cent compound annual growth rate (CAGR). Riding this momentum, Ujjivan aims to expand its gross loan book to ₹1 trillion by FY30, a dramatic leap from about ₹33,300 crore at the end of the first quarter of the current financial year (Q1FY26).

 

The growth is not limited to loans. Ujjivan also plans to triple its deposit base over the next five years. A key lever here will be expanding the share of low-cost current account savings account (CASA) deposits from 25.5 per cent in FY25 to 35 per cent by FY30. Supporting this expansion, the bank will add another 400 branches, taking the total network to 1,150.

 

Alongside rapid growth, Ujjivan is also targeting stronger profitability metrics. By FY30, the lender aims to improve return on assets (RoA) to between 1.8 per cent and 2 per cent while return on equity (RoE) is projected to rise to between 16 per cent and 18 per cent. This improvement will be supported by a shift toward secured lending, better underwriting practices, and greater use of data analytics. These measures are expected to lower credit costs by around 100-150 basis points (bps) by FY30. 

 

However, the strategy also acknowledges a likely tradeoff. As Ujjivan leans toward secured lending, margins are expected to compress to between 6 per cent and 7 per cent, down from 7.7 per cent in Q1FY26 and well below the average margin of 9.1 per cent recorded during FY21-FY25.

 

Beyond organic growth, Ujjivan is eyeing a significant regulatory milestone: conversion into a universal bank. The bank submitted its application in February 2025 and expects clarity by December. Analysts view this as a potential game-changer. Approval would ease capital requirements, lowering them from 15 per cent to 11.5 per cent, while also removing exposure caps that currently restrict 50 per cent of loans to a ₹2.5 million ticket size. Priority sector lending (PSL) obligations would also reduce from 60 per cent to 40 per cent. Perhaps more importantly, shedding the "small finance" tag could enhance brand perception and reduce cost of funds.

 

Brokerages are optimistic about this prospect. ICICI Securities maintains a “Buy” rating with a target price of ₹55, calling the universal bank licence a "structural milestone”. Emkay Global is even more bullish, retaining its “Buy” rating with a target of ₹60, arguing that the stock trades at just 1.1 times Sept-27E (E stands for estimates) adjusted book value (BV), far below AU Small Finance Bank's 2.1 times after it secured its own universal bank licence.

 

"With Ujjivan SFB looking to increase focus on secured portfolio and building a sustainable business model, the execution will remain a key monitorable. Current valuation at 1.1x/0.9x FY27/28E BV remains attractive, supported by portfolio diversification, improving asset quality, and improvement in return metrics," said Antique Stock Broking, which gave the stock a “Buy” rating, with a target price of ₹73.

 

Despite the optimism, risks remain. Ujjivan is cautious about its Punjab portfolio, which is relatively small but vulnerable to the impact of recent floods. Another 2.5 per cent of its borrower-employee base faces indirect risks from US tariffs, with about 1 per cent specifically tied to textiles. Brokerages also warn of potential pitfalls.

 

Emkay Global trimmed earnings estimates by 5-9 per cent, factoring in margin moderation and higher operating expenses in the short term. It still expects RoA to improve to between 1.7 per cent and 2 per cent by FY28, compared with 1.3 per cent in FY26, led by recovery in the microfinance segment.

 

ICICI Securities, meanwhile, flagged the risk of higher-than-expected slippages in the unsecured loan portfolio, rising credit costs, and slower assets under management (AUM) growth if secured lending does not pick up as expected.