Ujjivan Small Finance Bank Limited (UJJIVANSFB) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Ujjivan Small Finance Bank conference call to discuss queries related to recent management and board changes hosted by IIFL Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to [indiscernible] from IIFL Securities. Thank you, and over to you, sir.

Thanks, [indiscernible]. I'd like to thank the management of Ujjivan Small Finance Bank for giving us the opportunity to host this call. This call will be addressed by Mr. Samit Ghosh, additional Director nonexecutive, nonindependent of Ujjivan Small Finance Bank and also the Chairman of Ujjivan Financial Services Limited and Mr. Sunil Patel, Independent Director of Ujjivan Financial Services Limited. I will now hand the call over to Mr. Samit Ghosh for his opening remarks, followed by which, we will have a brief Q&A session. Thanks, and over to you, sir.

Thank you very much. Good morning to all of you, and thank you for joining us at a very, very short notice at this early hour. You all must have seen our press release and read about the resignation of Nitin. And this call might be for last, which came to us also a bit of a surprise. And also, the bank has been working for last few months to strengthen the Board, and we've inducted a number of key Board members, including Mr. Nambiar, who is the ex-CMD of Andhra Bank. And he -- we will plan to propose him to chair the Board subject to RBI approval. Then we have Sudha Suresh, who was our CFO, and she was also MD of the holding company. She will rejoin us as -- on the board. And Ravichandran, who is a banking professional and IT -- from the IT industry also. He will also join us. And finally, the Board has -- the holding company Board has nominated me to be a common director of both the bank and the -- bank and the holding company. Mainly to -- our focus will be to make sure that we focus on this whole crisis of the portfolio quality, and we manage it much more closely as we go ahead. Also, the attrition which have taken place, we want to stem that attrition of the senior management who built Ujjivan over the last so many years. and we want to rebuild Ujjivan from that perspective. And finally, I would also help facilitate the reverse merger process between the holdco and the bank. I've been in touch with the reserve bank personally, both in terms of this transition of the management, and we are working very closely with them on that issue. Our objective is really to bring in stability to the bank, both in terms of the churn, which has taken place on the Board and the management and also ensure that given our tradition of being a very conservative bank, make sure that we recognize all our problems upfront and manage them in a proactive manner. So we'll be working on that. And both the holdco and the bank will certainly collaborate very closely in the reverse merger process to make sure our shareholders' interests are taken care of. We really now look at the bank with a lot of optimism, and we've gone through a lot of rough time, but I think we are looking forward an optimistic kind of scenario coming up in the next -- in a few quarters in the next couple of years. Both Sunil and I who have been part of the founding team of Ujjivan right from 2014 onwards, are here to answer your questions. So instead of my going on giving you a launch speech, we'd rather answer your questions. So we look forward to answering your calls.

[Operator Instructions] The first question is from the line of Renish Bhuva from IIFL Securities -- sorry, ICICI Securities.

Yes. Sorry, I was on mute. Is it -- I'm audible?

Yes, yes.

So sir, just a couple of questions. So one is on this entire transition since we are already in the sort of end of the August and Nitin is there until September. So how we're going to plan the transition? And where we are as of now in terms of our new hiring for the post of MD and CEO? That is number one. And number two, so what sort of, let's say, a figure this kind of board restructuring and maybe even at the executive role as well. If you can throw some light on both these aspects, that will be helpful, sir.

So for the first question, basically, Nitin is going to be there till the end of September, but we have a Board meeting on the 25th, and we will decide on the transition how we manage this transition, and we had a discussion on this with the RBI also. What happens is we will designate someone as an officer in special duty who is very familiar with Ujjivan and especially managing this kind of crisis kind of situation, which is there in the portfolio quality kind of issue. And that person will manage the day-to-day operation of the bank post 25, till Nitin departs, end of September. Then that person can continue as an interim CEO. Meanwhile, we will do a search, both internally and externally, to look for a CEO, permanent CEO, which, as you know, from the whole process of the RBI approval, et cetera, takes 3 or 4 months. But we have...

Right. So for that...

Yes, sorry.

So for that, have we hired any, let's say, agency? Or how we are sort of proceeding?

No, no, we will see in terms of identifying for a permanent person, whether we need to do an agency or we will look for people internally only.

Got it. And the interim CEO...

But we have -- yes. Sorry, go ahead.

So Interim CEO will be the internal candidate or how is it?

Internal candidate.

Okay. Okay. Got it. And your saying it will be...

That will be approved by the Board [indiscernible]. First, it will be an officer in special duty. And after Nitin leaves, it will be an interim CEO.

Yes. Got it. Got it. And then for this also, we need RBI approval for...

No, no, no.

Okay, okay. And sir, on the second aspect of my question?

Yes. Just explain to me what -- I couldn't understand exactly what you want to know.

So basically, from last 4, 5 months, okay? So we have been seeing on the exchanges, there is a frequent board member designing. And now mc. CO has also stepped down. So maybe, of course, the way asset quality et cetera, has pan out for us. So I would not say it is inferior, but I think I will say entire industry is going through same problem in terms of the stress level, at least on the MBFI space. So what figure this frequent resignation from the Board as well as the top management team?

Well, as far as the Board is concerned, people have left for various reasons. Some of them had been there with us for a long time, and they decided to leave. We've been interacting the holding company and the bank quite closely, this thing. And one thing we wanted to -- we felt that the Board needed to be strengthened further. And that's why we have inducted these 4 people in now, and we may induct a few more together to strengthen the Board. As far as the bank management departure, not just the CFO, it's the serious -- what serious concern was that at a business level, a lot of the people who built to chin have left over last 1 year. And that is one of the main reasons why the holding company Board decided that I should join as a common director and look at 3 areas specifically. One is managing the whole portfolio quality issue proactively and in a transparent manner, in a conservative manner, which has been our tradition. Secondly, we want to stem this tide of attrition of a lot of our senior management who have left the bank and try to rebuild the organization from that perspective. And the third thing is this reverse merger process to ensure that it goes smoothly. Obviously, there will be a fourth area now, which would be also my responsibility is to ensure that the transition takes smoothly between now the current management, Nitin departing and putting in a new person in place and also managing this long transition, which may take 3, 4 months, very closely because this is a very difficult time of the bank. So we have to identify a very good person, which we have more or less done, and we will decide on that on the 25th so that we are able to manage this process very smoothly and bring in stability both at the Board and at the management level.

Got it. And sir, just last question from my side. Like say, from a regulatory standpoint, are you -- let's say, would it be eligible for nonexecutive to chairman roll or that option is not there?

No, no, no. I cannot be a nonexecutive Chairman. We will propose Mr. Nambiar. I will be just a common director.

The next question is from the line of Christie from ABR BN.

This is Christie. Yes. Thanks for the update. I guess I just have a few questions. And if it's okay for me to just ask about specific person -- people. Just wondering about the departure that has happened in various business hit. And given the change that's happening now, will you look to try to bring them back on board? Is that something that you think might be a possibility?

Certainly, Christie, we will be looking at that. That will be one of our objectives to get back the people who have left, if they have not moved on permanently. That is something we are going to work on Christie.

Okay. And do you think it's a matter of maybe making remuneration or incentives more attractive? I mean, was that possibly one of the reasons why they would have left as well?

Well, to tell you the truth, that remuneration and all that, we can take care of, that's not an issue. But people leave when they are unhappy with their work, not I mean it's not with -- it has not much to do with remuneration. But if remuneration is an issue, we will take care of it.

Okay. And I guess it was also reported that Ms. Carol Furtado had come back at the holding co level...

Yes.

She is quite experienced person. Is she the ideal person to be -- is she able to be appointed as the interim CEO at least or be the CEO as in will she be the natural process?

Well, she would be really one of the top candidates for the officer in special duty during the transition -- initial transition period and also for the interim CEO. That is some -- she's certainly the top candidate. And that's what we will consider on -- at the Board meeting on the 25th.

Okay. Okay. And my last question would be just on the digital transformation because I guess that was one of Nitin's objectives, and that's his skill set and experience as well, and he's formed various partnerships. So how do you see that going forward with him stepping away? Will that affect the partnerships that have already been signed on? Or is it...

No, no, Christie, I don't think that would be an issue at all. We will continue on our path, on that digital path. And there are officers who are handling that at a -- one level below Nitin, and they will manage the process smoothly. So that is not going to be an issue.

Okay. So there is like a specific, say, digital team.

Right, right, right. We have a person.

Is it one person or are you able to share like how...

I mean one person has the digital initiative.

Okay. Who is someone else. Okay. But in terms of the strength of the digital team and you know -- are you able to share how many people you have in that team, how long they've been with the bank?

Christie, I just joined the bank board today. So I'm not privy to a lot of information, but they've just built, I think, a good team. So I can let you know after I check it out, yes.

Okay. I mean you've been as open as you can be, so really appreciate that.

Your next question is from GCJ Financial Advisors.

Yes. Sir, my question is related to is there any financial implication possible in short term because of MDA in the company?

No. There are no financial implications. I mean, not that we are aware of.

Okay. And can you comment on the recovery that we see third way is not inside? So is the recovery happening, if you can comment on that?

See, as I said, I've just joined the board today, so I am not privy to a lot of inside information. But from what I understand across the industry and also in Ujjivan, they had a fairly good term in terms of collections, et cetera, in this quarter so far. But it is still going to be a big challenge, but we'll have to look into that. And as I said, we've always been very conservative. So we will look at this quarter and see whatever -- how our portfolio is and then take measures to ensure that the -- whatever measures we do is upfront so that we can close the issue this quarter. And from the following quarter, we continue to perform in an upward trend.

Okay. Do you see any further attrition at the senior management level or second launch management level?

So I can't say, Gautam. The thing is I don't think the older management will certainly not leave. And I think a lot of them have left or are giving -- are in the notice period will stay on with Ujjivan. Some of the newer people who have come, I don't know, they might feel uncomfortable with Nitin leaving. So they may think of leaving. So we are not sure about that. We have not talked to any of them yet. So we'll see how it goes.

Okay. And how confident are you that there will be a small transition with the top management and banks will come back bouncy in the medium term?

I am absolutely confident because the thing is we've gone through many crises in the past, starting with Andhra crisis, the demonetization crisis, et cetera. We've always bounced back. And I think we will be able to do that as long as we work to our plan and are working in a very transparent and clear manner. The whole issue of I feel the COVID crisis, obviously, has a huge impact on us. So we'll have to see how that plays out, if that is going to impact us in the future. But as far as the present portfolio and all that is concerned, we will clean it up. We will make sure -- we will put the full force in terms of collection, restructuring, et cetera. The other thing which I'm very keen to do is that end of the day, it's a vaccination which stopped this COVID crisis. So we will put a lot of emphasis not on -- and support not only to make sure that our staff are vaccinated, but also our customers. So if the customers have vaccinated especially in the microfinance area, our portfolio in the long run and the medium term will be good.

[Operator Instructions] The next question is from the line of Abhishek Murarka from HSBC.

So sir, my first question is in terms of what's happening now. You're effectively back to the pre-Nitin period when Nitin was not 2 years back in terms of the construct of the team. So incrementally, do you expect to still hold on to the strategy that was there at the bank? Or is there going to be a complete rethink on how the bank is going to go forward?

Abhishek, the thing is the team is not come back to what it was pre Nitin days. Nitin has hired a lot of people who are there in the organization still. And we have to make sure that those who want to stay with us will stay on. And we certainly will not change our course direction in terms of building the mass market bank based on technology and digitization, et cetera. So that will certainly continue. And it is certainly not going to go back to the pre-Nitin base because we moved ahead quite a bit. And we will move further beyond that line, and we'll stay the course. We are not going to change the course.

Sure, sure. No, what I meant was that you're back -- Sudha ma'am is back, Carol is back. So in that sense, there are some of you who had built the company and who knew what direction the company was taking from that point of view. My question is -- sorry...

Yes, sorry. So Carol is back in the holding company. And as we discussed with Christie, she will probably be the prime candidate to manage the transition. And basically, she has had 2 very strong points. One is, she has managed the previous microfinance crisis for Ujjivan. So -- and that is one of the big problems which we are facing today. So we feel very confident with her in place that we will be able to manage this portfolio quality problem largely in the microfinance, and to a certain extent in MSME space also. Secondly, she has been the Head of HR, and she has, having been with the bank for 15 years, very strong ground connect and people connect. So the whole people issue, she is an ideal person to handle. These are the 2 things. Sudha actually will be coming back and looking hard -- taking a hard look at the finance function. And also with her experience, it will -- the reverse merger process will be very easy. I mean she is most the whole inside of Ujjivan. So our knowledge and experience will help that. I am there just as a shephard.

Right. Sure. And sir, the other question is in your opening remarks, you said you'd like to bring in more transparency in asset quality reporting. And just now you said that you'll be trying to clean up the portfolio, et cetera. So is there any issue with the asset quality reporting that you need to change? Or is it just...

No, no, I don't think there is an issue. But if you see the provisioning and which started from the first quarter of last year, we moved up and down. And frankly, our tradition has been to recognize problems upfront, be transparent, take proactive action immediately, those kinds of things, we will strengthen.

Okay. Okay. Because the entire industry has gone through this up and down in terms of their collections and asset quality. So I was just wondering how is it different for Ujjivan?

Well, I mean, if you compare us with others, there is a difference. I mean, sure. With the waves of the COVID crisis coming, the crisis -- we have gone through various ups and downs, and we may be going through future ups and downs if the third wave at all comes. But we will certainly try to go back to our tradition of being upfront recognition of entire problem. You're then proactively managing it, providing for it. And it will start from this quarter.

The next question is from the line of Abhijeet from Kotak Securities.

The first question is -- like just sorry to question again, but what exactly led to the situation that you would kind of highlight us to the key reasons for [indiscernible]. In the TV interview, you mentioned that there was some sort of a performance pressure on him because the asset quality challenges.

No, no. No. I mean, not any pressure in the sense -- obviously, there was pressure in the sense that Ujjivan was going through a very difficult time. So whether it's Nitin or anyone else in any other small finance bank or a microfinance institution, they all went through a lot of pressure. That's all I was referring to, but nothing special.

[indiscernible], do you see any issues with the way the entire COVID crisis was handled by the current management team? So on the asset quality itself, what exactly were the gaps that were found in the way the previous management was dealing with the situation? And what sort of course correction do you think is needed? And do you sort of want to reverse some of the things that were done in the past couple of years? Give us some comment of detailing on what issues do you see on the asset quality levels.

No. Abhijeet, I don't think there is any reversal or anything which we will do. But it's a matter of degree. And as I mentioned earlier, we have been a very conservative bank. We've always tried to recognize our problems upfront, and take provisions and 2 proactive measures in terms of collection restructuring and all that, whatever needs to be done. And this has been -- maybe the pace at which it is done has been a cause of concern for us over the last 1 year in the holding company board. We may have sensed that we should have been a bit more proactive to that extent. But it's -- the question is a matter of degree, nothing reversal or something like that.

And in terms of attrition, do you see issue that -- like apart from senior levels, do you see issues at the [indiscernible] at the ground level as well?

There are -- in the last few months, I mean, there has been a lot of attrition across the board at different levels at the branch level, at the field level, at the mid-management level. And that is all. We will try to stop that immediately.

Sure. And anything on the liability side that you think has to rework or restrategize for the bank?

Well, we'll not look at the liability side so far. I think the performance so far has been reasonable, but we'll certainly take a look at what we are doing on the liability side and recalibrate, I would say.

The next question is from the line of Varun from FTIM.

Sir, could you elaborate a bit on the [indiscernible] strategies and initiatives that Nitin was focusing on and on how did he succeed?

Sorry, the digital strategy?

Yes.

Well, I mean I -- as I have mentioned earlier, there is not going to be a significant change from that, as I explained to Christie because the entire team is going to be there, and we have a full team there. I actually am not -- because I just joined the board from today, not privy to the entire [indiscernible] that we will review our digital strategy more closely. And that will go on. I mean that will proceed as usual.

Understood. Also, since you mentioned a few team members who will be making specific initiative. So could you be -- I mean, elaborate say, let's say, Sanjay, who has been Chief Business Officer and has also looked at the people's function in terms of how we could be contributing going ahead?

You're talking about Sanjay [indiscernible]?

Yes.

Well, we have to take -- we have to evaluate how we have managed the people function, especially, as I said, we were very concerned about the attrition, which has taken place at all level and continues to take place now. And based on that, we will evaluate its performance and take a call.

The next question is from the line of [indiscernible], an individual Investor.

Am I audible?

Yes, yes, please.

Yes. Sir, you just mentioned earlier that you will bring a lot of transparency and recognition in upfront provisioning and structuring. But I believe that when Small Finance Bank was created, onetime upfront provision was already done. So -- and this time also based on whatever parameters were being established on various occasions, the provision is done. And I see it as a very rare combination of digital and banking management together and -- which may be difficult for this ongoing situation to -- it's hard kind of resources that could be replaced. So if you can throw some light on that as well.

So I think we have made adequate provisions in the last quarter. There's no doubt about it. We will take a look again in terms of the portfolio in this quarter and see if this is adequate or not or we need to take more. So that is from that perspective. As far as Nitin is concerned, obviously, we were all very impressed with his digital expertise and his track record. So that's why he -- we actually recruited him. And -- but I mean, we've seen what has happened and he has finally decided that he wants to move on. And so we have to respect his wishes and get someone else to take Ujjivan further.

Right. Because as an individual investor and since I'm holding shares from a very long period of time and from shareholders point of view, I see green fruits coming out and Ujjivan is on the right track. And for the provision itself, I felt that Ujjivan is at a very sweet spot considering AU small finance bank has created a provision of 49% -- PCR is 49% for AU and 51% for [indiscernible]. So compared to that, Ujjivan has sufficiently adequate cover. And one of the highlights was that the new look like post meeting what created it as NPA of 0.4%, and that was around 56% of the total asset quality. So I was just wondering that what else would come out from this?

No, we are not sure what will come out. We'll take a look and see what is there, if any additional provisions have to be made. As I said, I just joined the bank Board today. And we will take a hard look because -- and as you've said, that we made very substantial provision last year and PCR is one of the better among the small finance banks. So we are very happy about that. But whatever needs to be further taken, we will take it this quarter if necessary to make sure that we have a clearer book, and we can start our recovery process from the following quarter.

The next question is from the line of Anand D. from Vito Capital.

Just wanted to understand what was the full notice period for Nitin. And would he be serving as of this period. And then...

Sorry, I can't share you clearly. Can -- I don't know, maybe you're speaking on a speaker.

I just want to question what's the contractual notice period for Nitin, and if he's the serving the full notice period.

Yes, he is serving the contractual notice period, which is till end of September.

But typically, notice periods are at least 2 or 3 months. So in this case, it seems to be much, much lesser and given the criticality of the whole, we would have liked to be...

I mean he has indicated that he wants to be released by end of September. So we will see whether that's something which we'll take it. But I suspect it is within the contractual period. It's his decision to -- September 30 is his request.

And we are considering whether we can entertain that. So it's currently not highlight for sure.

No, no. I mean, we've -- if that's the date he wants to leave, that is something we will certainly consider positively.

Okay. But doesn't that put us in a very tricky situation in such a volatile environment, whereby having a CEO is a very critical thing for the organization to kind of...

That is the reason why RBI has this concept of an officer in special duty to take care of the transition period to manage the bank operation during that period. So even this period, when -- once we decide on that on our Board meeting on 25th, the operations on the officer on special duty is actually effectively going to manage the bank. So Nitin's presence will not be that much important for us for our day-to-day operations and managing the bank's portfolio and all the other issues. He has indicated he wants to stay till September 30, and he'll stay till September 30.

The next question is from the line of Gaurav Jani from Centrum.

Couple of questions from mine. Firstly, on our asset quality performance versus peers, we have definitely seen more stress, right, buildup over the last few quarters compared to last year. Would you attribute this to the kind of attrition you have seen?

Sorry, what's your question?

No. So my question was, sir, would you attribute the stress buildup that we have seen, which is higher than peers, to the attrition that we have witnessed over the last couple of quarters? And to your...

Certainly, I mean from -- I mean, as I told you, I can't tell you exactly the situation which has impacted the bank because I have not been part of the bank Board. But from my experience, especially in microfinance, if you cannot hold the team together, that leads to -- that is a big contributor to our asset quality. So because at a ground level, at the middle level and at a senior level, you have to hold the team together whether in microfinance or whether in retail credit, when there is a crisis, just like on a ship, if you are in a storm, you have to have all hands on deck and just concentrate on navigating the ship through the storm, right? In that situation, if you start having attrition, obviously, it puts the ship into a grave danger. So it's a similar analogy to whether it's retail lending or whether it is microfinance, that's my experience. And I think any major retail lender will tell you the same thing.

So then your experience, if I may, how much further? So on a lower and middle level, would the reasons have been similar to the top-level resignations that you are seeing?

Sorry, the middle and lower level is the single leave, does that have an impact on the lower levels? It certainly does.

No. I was trying to [indiscernible] that the attrition you would have seen at the lower end level, the reason that probably they would have left, would the reasons have been similar to the high-level attrition that you have seen?

Sorry, I mean, I couldn't understand your question the lower and middle level attrition, which has taken place. Does that lead to a higher level of attrition?

No, no. Sir, I was trying to get to the reasons that they would have left the lower on the middle level. And I was just trying to tie up the...

See, let me tell you one thing. If the -- even in a crisis situation, at the lower level, at the ground level, if they don't get adequate support, then they will leave. So I mean, I'm -- hypothetically, I'm telling you, if there is a credit crisis. And you have to initially beef up your collection team and not with novices, but real professional collectors. So -- otherwise, there is a tremendous pressure put in place of the existing people. And then people start leaving. So that's the way I see it. I mean you have to -- during a crisis like that, the first thing you do is strengthen your collection fee and work -- make sure that they work effectively during this period.

So, sir, we had [indiscernible] our collection team, right, over the last 1 year, this is a [ company called interactions ]. So I was just wondering as to what you could have done definitely.

So it's a question of degree, how fast you put your collection team in place, how -- are there adequate numbers, et cetera, you have to also look at branches if they're adequately staffed, if they have a huge collection problem, normally what we used to do in the past is in a particular branch, if there is a huge collection problem in the microfinance we would supplement it with additional people, either from other branches to support them, or we would hire additional people to do it. So those kinds of things at a very micro level, you have to manage it very closely. So we have to see it because as I said, I just joined the bank Board today, and I will see it more in-depth very closely in the next few days and weeks.

Thank you very much. Ladies and gentlemen, [indiscernible] of time, that was the last question for today. I'll now hand the conference over to the management for closing comments.

Well, thank you very much for joining us at this meeting for -- at a short notice and asking us all the questions you have. What I would like to say is feel free if you have any further questions, anything you require, Deepak is there. He's our Investor Relations person. Akash is also there, who manages our Investor Relations. Any questions or you can directly get in touch with me, Sunil or whatever and whenever you want it. You don't have to wait for the analyst call please feel free to contact us, and we'll be happy to give you any kind of answers. Thank you very much.

On behalf of Ujjivan Securities Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.