Share Price Alert: Ujjivan SFB Rises Over 2% After Board Offloads Rs 270 Crore In Non-Performing Loans

After the board's decision to offload non-performing assets and written-off loans valued at over Rs 270 crore to an asset reconstruction company, Ujjivan Small Finance Bank's shares experienced a more than 2% rise, reaching Rs 34.5 each on November 28. This strategic move is part of an effort to clean up the bank's balance sheet, as the stressed loan portfolio being sold, which includes written-off loans, amounted to Rs 270.35 crore as of September 30, 2024. The sale, completed via the Swiss Challenge method—a competitive process that invites counter offers to an initial offer—brought in Rs 40.55 crore for the bank, as disclosed in a filing with the exchange.

The bank's performance in the recent September quarter was mixed. While the net profit saw a 23% year-over-year decline, there was a 9.5% increase in net interest income (NII). Despite these figures, Ujjivan SFB's asset quality showed resilience with a gross non-performing asset (GNPA) ratio of 2.5% and a net NPA ratio of just 0.6%. These results reflect a stable but challenging environment for the microfinance institution, amidst a broader context of stress within the sector.

The management has had to adjust its expectations for the year, retracting its initial loan book growth forecast of 20% due to the uncertain climate in the microfinance sector. Additionally, the net interest margin (NIM) guidance was lowered from around 9% to approximately 8.6%, attributing this adjustment to the shrinking microfinance portfolio and anticipated reversals in interest income. Consequently, the return on equity (RoE) guidance of 20% for the year was also withdrawn.

Over the course of the year, Ujjivan Small Finance Bank's stock has seen a significant dip, with a 41% fall, starkly underperforming against the Nifty 50's 10% increase. This downturn reflects investor concerns and the broader challenges faced by the sector, including issues of stress and overheating that have plagued microfinance institutions throughout the financial year.

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