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Research reports on IPO companies. These reports focus on the company profile, company’s strengths and weakness, in the current scenario. It also provides valuation of company’s financials and objective of the issue.
New Issue Details
Thursday, November 28, 2019 Click here for Rating Reckoner
Ujjivan Small Finance Bank
Focused on micro finance
Ujjivan Small Finance Bank commencing operations on 1 February 2017 is a mass market focused small finance bank (SFB) in India, catering to unserved and underserved segments. The bank is promoted by Ujjivan Financial Services (UFSL) - an NBFC which began operations in 2005 with the mission to provide a full range of financial services to the 'economically active poor' who were not adequately served by financial institutions. Ujjivan Financial Services is among the 10 recipients of SFB license from the Reserve Bank of India (RBI) in 2015.

UFSL's business was primarily based on the joint liability group-lending model for providing collateral-free, small ticket-size loans to economically active poor women. The company also offered individual loans to micro and small enterprises (MSEs) and adopted an integrated approach to lending, which combined a customer touch point similar to microfinance, with the technology infrastructure and related back-end support functions similar to that of a retail bank. UFSL transferred its business undertaking comprising of its lending and financing business to Bank.

The Bank is spread across 24 states and union territories end March 2019. The bank has strong 4.94 million customers base operated from 552 Banking Outlets end September 2019. In FY2019 alone, the bank has operationalized 287 banking outlets. The bank has a network of 441 ATMs (including 18 ACRs), two 24/7 phone banking units based in Bengaluru and Pune that service customers in 11 languages, and a mobile banking application that is accessible in five languages as well as internet banking facility for individual and corporate customers.

The portfolio of products and services includes various asset and liability products and services. The asset products comprise: (i) loans to micro banking customers that include group loans and individual loans, (ii) agriculture and allied loans, (iii) MSE loans, (iv)affordable housing loans, (v) financial institutions group loans, (vi) personal loans, and (vii) vehicle loans. On the liability side, the bank offers savings accounts, current accounts and a variety of deposit accounts. In addition, the bank also provides non-credit offerings comprising ATM-cum-debit cards, Aadhaar enrolment services, distribute third party insurance products and point of sales (POS) terminals.

The bank has grown in a sustainable manner since beginning its operations. The gross loan book (including securitization/ IBPC) surged from Rs 6383.98 crore end March 2017 to Rs 11048.59 crore end March 2019 and doubled to Rs 12863.65 crore end September 2019.

The deposits base has galloped from Rs 206.41 crore end March 2017 to Rs 7379.44 end March 2019 and Rs 10129.85 crore end September 2019. The share of retail deposits has increased from 3.15% end March 2017 to 41.93% end September 2019. Casa to total deposits ratio has improved from 1.57% end March 2017 to 10.63% end March 2019 and was 11.87% end September 2019.

The bank has stable asset quality with gross NPA ratio at 0.85% net NPA at 0.33% end September 2019. The bank has raised the share of secured advances from 1.83% end March 2017 to 13.59% end March 2019 and 19.39% end September 2019.

The bank has posted net profit of Rs 6.86 crore in FY2018 and Rs 199.22 crore in FY2019, while net profit stood at Rs 187.11 crore for H1 of FY2020.

The bank has healthy capital adequacy ratio of 18.84% with tier I capital ratio of 18.16% end September 2019.

The bank intends to develop and offer a comprehensive suite of asset and liability products and services that will help attract new customers and deepen relationship with existing customer base. The focus customers of the bank are primarily young middle class customers across India. The bank would strategically invest to increase the use of technology in operations, while intends to reduce costs, increase operating efficiencies and move customers from an assisted mode to a self-service mode of digital and phone banking. It will selectively operationalize additional Banking Outlets, convert existing Asset Centres to Banking Outlets, expand ATM and ACR network and engage more business correspondent agents to grow customer base and increase advances and deposits. The focus will continue to remain on serving the unserved and underserved segments to build responsible banking behaviour by educating potential customers and increasing financial literacy.

The employee base of the bank has grown from 10,167 employees end March 2017 to 14,752 employees end March 2019 and 16,776 employees end September 2019.

The Offer and the Objects

The initial public offer (IPO) is to collect Rs 750 crore by issuing 20.833 crore shares at the lower band of Rs 36 per share (face value Rs 10 per share) and by issuing 20.270 crore shares at the upper band of Rs 37 per share. The issue is to be made through the book-building process and will open on 02 December 2019 and will close on 04 December 2019.

In terms of the RBI in-principle approval, RBI final approval and SFB licensing guidelines, the bank is required to list its equity shares on the stock exchanges within three years from the date of commencement of business by the bank, i.e., 31 January 2020. The bank proposes to utilize the net proceeds from the issue towards augmenting tier - 1 capital base to meet future capital requirements. Further, there will be the benefits of listing of the equity shares on the stock exchanges, enhancement of the brand name and creation of a public market for equity shares in India.


A large section of the Indian population lacks access to formal banking services or is served by informal providers and the bank has a deep understanding of mass market and is in position tap this large customer base. Also, financial inclusion has always been a key priority for the Indian government.

The bank is among the leading SFBs in terms of branch count and geographical spread across India. It is present in 24 states and union territories encompassing 232 districts in India, operating 552 Banking Outlets (131 in north, 167 in south, 173 in east and 81 in west region) end September 2019. The diversified operations help to de-risk business by mitigating political and state-specific risks.

No single state constituted more than 18.00% of overall loan portfolio. The north, south, east and west regions contributed 19.58%, 34.70%, 29.52% and 16.20% of gross advances (including securitization/ IBPC) end September 2019. Metropolitan, urban, semi-urban and rural areas accounted for 29.65%, 34.80%, 29.92% and 5.63% of gross advances.

Its effective credit risk management is reflected in portfolio quality indicators such as robust repayment rates, stable portfolio at risk and low gross and net NPAs. Bank's GNPA was the lowest among the small finance banks in India end March2019.

There is a strong track record of financial performance since inception through high rates of customer retention, geographical expansion, operationalization of banking outlets, improved productivity, lower credit cost and growth in customer base. Improving operational efficiencies, low turn-around time and network of banking outlets have resulted in the rise in profitability.

The bank has maintained strong Net Interest Margins of 10.31% in FY2018, 10.93% in FY2019 and 10.64% in H1 of FY2020. Cost of funds has been 9.01% and 8.33% in FY2018 and 2019, respectively, and was 8.43% in H1 of FY2020.


  1. The small finance banks are subject to stringent regulatory requirements and prudential norms. SFBs are required to be controlled by residents in accordance with Fema at all times from the date of commencement of operations. Promoter is required to reduce its shareholding to 40% within a period of five years from the date of commencement of business operations and thereafter to 30% in 10 years and 26% in 12 years. At least 25% of total banking outlets of SFBs have to be located in unbanked rural centres. At least 50% of loan portfolio is required to constitute loans and advances of up to Rs 25 lakh and 75% has to be priority sector lending (PSL) compliant. A strategic non-promoter investor cannot hold more than 20% or more of the share capital at any time.
  1. The bank significantly depend on micro banking business, particularly group loans, that accounted for 79.22% of loans (including securitization/ IBPC) end September 2019 compared with 97.50% end March 2017.
  2. Micro banking loan portfolio, personal loans, and certain categories of MSE loans are not supported by any collateral.
  3. The bank has a limited operating history as an SFB.
  1. The operations involve handling significant amounts of cash, making it susceptible to operational risks, including fraud, petty theft and embezzlement

SFBs are subject to periodic inspections by the RBI and during the recent inspection conducted between January and February 2019, for FY2018, The RBI has made certain observations regarding (i) the lack of a system to tag PSL advances, mis-categorising of PSL advances, and earning of processing fees on PSL loans; (ii) lack of a rating methodology to assess borrowers; (iii) high proportion of bulk deposits, and concentration of deposits in top 20 depositors; (iv) liability products being offered from certain Asset Centres without RBI approval; (v) lack of a fraud management system, weak customer grievances redressal mechanism and deficiencies in AML and KYC protocols.

  1. Top 20 depositors account for 34.99% of total deposits and a loss of such customers could materially and adversely affect deposit portfolio.


The annualized EPS on post-issue equity works out to Rs 2.2 for H1 of FY2020 compared with Rs 1.2 for FY2019. At the price band of Rs 36 to Rs 37, P/E is 16.6 to 17.1 times of H1 of FY2020 EPS.

The bank has issued 71,428,570 equity shares for cash consideration aggregating to Rs 250 crore in a pre-IPO placement at Rs 35 per share in November 2019.

Post-issue, the book value (BV) will be Rs 16.4, while adjusted BV (ABV) net of net non-performing assets works out to Rs 16.2 per share at upper price band.

The scrip is being offered at price to BV of 2.25 times at the upper price band. Among peers, AU Small Finance Bank is trading at P/BV of 7.16 times and Bandhan Bank at P/BV of 6.25 times.

UFSL is trading at 1.84 times and its comparable peer Equitas Holding is trading at 1.23 times on a consolidated basis.

Ujjivan Small Finance Bank: Issue highlights

For Fresh Issue Offer size (in no of shares )
- On lower price band20.833 crore
- On upper price band20.270 crore
Offer size (in Rs crore )750.00
Price band (Rs)36-37*
Minimum Bid Lot (in no. of shares )400
Post issue capital (Rs crore)
- On upper price band1728.22
- On lower price band1733.85
Post-issue promoter & Group shareholding (%)83.3
Issue open date02-Dec-2019
Issue closed date04-Dec-2019
Rating 48/100

*Discount of Rs 2 per share for eligible UFSL shareholders bidding in shareholders' reservation portion

Ujjivan Small Finance Bank: Financials

Particulars1703 (12)1803 (12)1903 (12)1809 (06)1909 (06)
Interest Earned217.011467.881831.61833.331259.70
Interest Expended109.36606.86725.20326.99519.28
Net Interest Income107.65861.011106.41506.34740.42
Other Income6.86111.48205.9691.15175.16
Net Total Income114.52972.491312.38597.49915.58
Operating Expenses109.19652.871003.35445.90612.96
Operating Profits5.33319.62309.02151.59302.62
Provisions & Contingencies4.44310.7740.6021.2343.58
Profit Before Tax0.898.85268.42130.36259.04
Provision for Tax0.861.9869.2140.2271.93
Net Profit0.036.86199.2290.13187.11
* Annualised on post issue equity of Rs 1728.22 crore, Face value Rs 10/- Figures in Rs crore Source: Ujjivan Small Finance Bank IPO Prospectus

 Ujjivan Small Finance Bank: Operational and financial parameters

1703 (12)1803 (12)1903 (12)1809 (06)1909 (06)
Composition of total advances
Micro banking 6224.356997.929354.687381.9210190.67
Micro and Small Enterprise Loans 56.35224.24590.60353.19834.63
Affordable Housing Loans 98.55322.78829.86533.241212.00
Financial Institutional Group Loans --224.9724.98521.39
Personal Loans --11.430.0151.11
Others 4.7316.2637.0525.9053.85
Total Gross Advances (including securitization / IBPC) 6383.987561.2011048.598319.2312863.65
Secured Advances (As % of Total Gross Advances (including securitization / IBPC))116.98406.191501.46743.802494.47
Non-Performing Assets
Gross NPAs16.40275.9297.85153.89109.40
Specific provisions14.60224.9970.30130.5466.87
Floating provisions0.
NPA net of provisions1.8050.9327.5523.3542.53
Gross advances5875.657561.2010622.768169.2212847.27
Net Advances5861.057336.2110552.468038.6812780.40
Gross NPAs/gross advances (%)0.28%3.65%0.92%1.88%0.85%
Net NPAs/Net advances (%)0.03%0.69%0.26%0.29%0.33%
Specific provision as a percentage of gross NPAs89.04%81.54%71.85%112.29%122.93%
Total provisions as a percentage of gross NPAs760.93%94.77%126.95%112.29%122.93%
Provision cover (including prudential write-offs)89.04%81.87%71.90%85.22%61.12%
Composition of total deposits
Demand deposits 0.0010.2380.5529.21207.18
Savings deposits3.24128.45703.54348.25995.59
Time deposits 203.173633.836595.353810.668927.08
Total Deposits 206.413772.527379.444188.1210129.85
Retail Deposits6.49427.042735.921258.844247.63
Institutional Deposits199.913345.484643.522929.295882.22
Total Deposits206.413772.527379.444188.1210129.85
Average total assets 8515.398954.3911607.549928.3114925.06
Net Interest Income107.65861.011106.41506.34740.42
Key Ratios
Loan Yield18.73%19.66%18.66%19.82%19.93%
Cost of Funds10.01%9.01%8.33%8.32%8.43%
Net Interest Margin8.36%10.31%10.93%10.88%10.64%
Average cost of borrowings 10.31%9.78%9.18%9.01%9.96%
Return on average equity0.02%0.42%11.49%10.62%19.57%
Return on average assets0.00%0.08%1.72%1.81%2.51%
Dividend payout ratioN.A. N.A. N.A. NA NA
Cost to average assets7.92%7.26%8.57%8.89%8.13%
Average net worth to total average assets10.28%18.35%14.93%17.04%12.81%
Credit to total deposit ratio3092.94%200.43%149.72%198.64%126.99%
Retail to total deposit ratio 3.15%11.32%37.07%30.06%41.93%
CASA to total deposits ratio 1.57%3.68%10.63%9.01%11.87%
Cost to income ratio95.35%67.13%76.45%74.63%66.95%
Capital Adequacy Ratio
Tier I Capital 1460.141482.951653.371598.641820.72
Tier II Capital 47.9648.1349.7950.5068.39
Total Capital 1508.091531.081703.171649.141889.10
Total Risk Weighted Assets 7157.536645.258989.686930.4510025.60
Tier I Capital20.40%22.32%18.39%23.07%18.16%
Tier II Capital 0.67%0.72%0.55%0.73%0.68%
Total Capital21.07%23.04%18.95%23.80%18.84%
Figures in Rs crore, Source: Ujjivan Small Finance Bank IPO Prospectus

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