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Informist, Friday, Jul. 25, 2025

By Rati Chaphekar

MUMBAI – Ujjivan Small Finance Bank said it expects credit costs to decline after the first two quarters of 2025-26 (Apr-Mar) on the back of reduction in slippages in its portfolio. The bank expects improvement in credit costs due to improved collection efficiency for its special mention accounts, the bank's management told analysts in a post-earnings conference call Thursday.

Ujjivan expects its net interest margin to be closer to 7.9% in the September and December quarters and then stabilise at 7.8% in the March quarter of FY26. The excess liquidity of INR 11 billion in the bank is a big reason for the decline in the net interest margin, the management said and added the margin would improve when the excess liquidity is deployed in the second and third quarters.

The collection efficiency for the special mention accounts-I of the bank has improved to 47% from 37% and for special mention accounts-II, to 45% from 42%. Special mention-I and special mention-II accounts are those where the payment of interest or principal is overdue for more than 30 days and 60 days, respectively. The bank said its special mention accounts book has declined to 2.29% of total advances in the latest quarter from 2.68% in the December quarter of FY25, indicating an improvement in asset quality. The bank also expects slippages to improve over the course of the current financial year. The June quarter has been better than the March quarter for non-performing assets and write-off collections, the bank said.

Ujjivan Small Finance Bank reported a 66% on-year fall in its net profit for the June quarter on account of an increase in the bank's total expenses and doubling of provisions.

The small finance bank plans to open 25 new branches in the next financial year and over 400 branches in the next four years, the management told analysts. The key metrics to monitor for the bank will be a 99.3% collection efficiency for bucket X, which are standard assets, as also the bank's gross net performing assets and the portfolio-at-risk.

The management expects to contain gross non-performing assets below 2.5% in FY26. It also expects the provisioning coverage ratio to decline as the increase in provisions is faster than the increase in gross non-performing assets.

The management expects credit costs to improve in the December quarter of FY26. Credit costs are expected to normalise by the March quarter. Credit costs were high in the June quarter, and are likely to remain so in the September quarter, as the bank is provisioning for the non-performing assets of the last two quarters during this period. The credit cost on unsecured loans is expected to be 2%-2.5% and on secured loans 0.7%-0.8% on a steady state basis. The average credit cost for FY26 will be lower than 1.7%, the bank said.

The cost of funds is expected to see moderation of 20 bps in each quarter in FY26. The yields will continue to decline for the entire year, the management said.  End

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Edited by Avishek Dutta

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