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00:00I think it's important to try and take stock of what is the outlook on credit growth going
00:05ahead for FY25.
00:07Ujjain Small Finance Bank came out with the numbers last week, but it's a good time to
00:10get in Itera Davis, MDA and CEO of the bank, to try and understand what could happen in
00:15the quarters to come.
00:16Their quarter, on a sequential basis, was flattish on a YOI basis.
00:21I think on most counts, they did really well.
00:23NI was up 27%.
00:25Pat was up about 6%, YOI provisions were also a bit mixed, of course, up about 25% quarter
00:33on quarter.
00:34Mr. Davis, good having you.
00:35Thanks so much for taking the time out.
00:36This is Neeraj here.
00:37Good morning.
00:38How do you sense the possibility of credit growth in FY25?
00:43Because one of the most common arguments that I see, this is for the banking space at large,
00:48not just about Ujjain, of course, but the most common argument that I see or hear is
00:53that corporates, large, mid, small, are not necessarily depending only on banking finance
01:01for funding any kind of CAPEX that may have.
01:04Any thoughts on this topic, sir?
01:07Good morning, Neeraj.
01:08Thank you for having me on NDTV.
01:11I think it's a good question.
01:13We have had two and a half years of good credit growth.
01:16I mean, all banks are doing extremely well.
01:20The whole segment is doing extremely well.
01:22So I think the question is, how is the economy going to do from here onwards?
01:28And that will also play an important role in demand.
01:31And also the deposit creation in the market is getting a bit difficult.
01:37Liquidity is a bit tight, although RBI has been seen to try and put some liquidity into
01:41the market.
01:43So given, I think maybe in the second quarter, we will see a lot more clarity on this post
01:51the election results.
01:52But I think right now the demand may be slowing in the large cap segment or the large corporates.
02:02It's also beginning to slow in the other areas, or rather the lenders are beginning to slow
02:06a little bit, even in the small lending space, the financial inclusion space, because it's
02:12a period of consolidation.
02:15Two and a half years of growth post-COVID has been fantastic, but you can't carry on
02:20that forever.
02:21So I think it is a consolidation phase.
02:23And once the new budget is announced and we are into the second quarter of this year,
02:27there will be a lot more clarity.
02:31One of the feelings or the beliefs, aside of the technical nature of the MTM gains in
02:36bond portfolios, is that this large RBI dividend gives more ammo to the government to fund
02:43CapEx.
02:44And largely it's been public CapEx or government-driven CapEx that has been the driving force behind
02:54all the CapEx spends in the country thus far.
02:56The belief is that private sector, except in fits and starts, hasn't quite participated.
03:00Does this large dividend give some confidence that CapEx spends will continue, even if in
03:07the near term, until the US elections are out of the way, if at all that is a factor,
03:12that private CapEx doesn't come back in a hurry?
03:14No, I think there's a lot of hope placed on this huge dividend with the government so
03:19that some spending will start and move in that direction.
03:23And hopefully, by the fourth quarter, we are hoping that interest rates will also begin
03:28to start weakening and decline.
03:30So once that happens, some demand will come back through that process.
03:34But yes, most importantly, this dividend which the government has received is something that
03:40we are all hoping, as participants in the market, that some of that will be spent in
03:46capital development, in sort of other outlays.
03:50There's been also talk about increasing the outlay on artificial intelligence and so many
03:54other projects which are there.
03:56So any of those projects that take off in the second quarter and third quarter will
04:01help the spend in the markets.
04:06Okay, what about your own numbers, sir?
04:09The NIN numbers, etc. all looked okay.
04:13Was it provisioning or higher provisioning, YOY, that hit the bottom line numbers?
04:18And what's the reason for the same?
04:20And what's the outlook going ahead, particularly on the provisioning and the asset quality?
04:24I'll come to growth in a bit, of course.
04:26Right.
04:27I think good questions.
04:28As I mentioned in the other part of the overall discussion we had, there's been two and a
04:37half years of big growth and there's a lot of credit which has come into the market and
04:43a lot of borrowers.
04:45So I think we are seeing a little bit of, not pent up demand, it's the excess supply
04:53which has come into the market, which is now beginning to rear its head.
04:57And there is a bit of concern in credit quality and that is being seen.
05:03Some states we are seeing that people are looking at rescheduling or government support
05:09and therefore repayments have slowed down.
05:12In other places there's been excess supply and over-leveraging has taken place.
05:17So that's also coming to the forefront.
05:19So this business is based on cycles and this two and a half years, this is the consolidation
05:26cycle and I think the whole industry has to be prepared for it, especially in the financial
05:31inclusion space.
05:32And those who are prepared for it will be able to take it through in the next six to
05:3712 months.
05:38Because we have to see the effect of this wear out and I think it's an important part
05:43of the cycle that we are looking at.
05:47Got it.
05:51For your client set in particular, Mr. Davis, is there any kind of, how do you say, concern
05:59around maintaining the level of asset quality that you would have?
06:04Are there some reasons why, either regulatory or otherwise, that you might go slow?
06:13Either because regulation is saying X, Y, Z or maintaining asset quality might be more
06:19important than growth, if you will, in the balance that I'm talking about.
06:23Can you give us some color there, sir?
06:25Absolutely.
06:26I think maintaining asset quality in a bank and in a financial institution is the foremost
06:32important thing that we have to look at.
06:34And we have all learned that from what happened during COVID and a couple of other crises
06:38before that.
06:39So yes, that is going to be our forefront.
06:41Now fortunately for us, we are operational in 26 states and in no state we have exposure
06:47more than 15%.
06:49And that spread, that diversification, helps us a great deal in trying to slow down in
06:55some areas where there is an issue which we need to address.
06:59And we can continue business as usual in other areas which are doing well.
07:03So I think that advantage is available to us and others who may be concentrated in certain
07:09areas.
07:10If the area is doing well, great.
07:12If the area is having problems, they'll have to address it.
07:14So I think this is something that the industry has to take into account and we have taken
07:19that into account.
07:20And we have planned for this year based on that feedback.
07:24In fact, our guidance on provisioning for this year is a little higher than last year.
07:29And that is based on what we are expecting the market to do during the current financial
07:33year.
07:34It's not, well, technically what you're guiding to also in FY25 on the margin front, Mr. Davis,
07:39is not moderation.
07:40If I just look at the pure play numbers, what you did currently, 9.4% versus what you've
07:45got it for FY25, 9%.
07:48You would say maintenance of margins or would you say that no, there is a bit of a moderation
07:52that you're guiding to?
07:54The margins, it's a question of how we also manage internal liquidity and other ratios
08:00and things like that.
08:02So we are expecting the interest rates to stay high at these rates till about the fourth
08:08quarter.
08:09So there's not going to be any benefit from a downward turning interest rate curve, which
08:16will definitely come in the next financial year.
08:18So for this financial year, the guidance of 9% has been based on continuing where we are
08:24trying to hold on to the current interest rates on the term deposits and CASA.
08:32And building the CASA a little bit, we are at 26% on the CASA, we'd like to see that
08:39move towards 30%.
08:41And as that moves towards 30%, we'll be able to benefit from that on the NIM front, because
08:47that will reduce the burden of the term deposit interest.
08:51So it's a question of managing all these ratios from which we are able to see NIMs play out
08:56to 9%.
08:57So all in all, I think that is not going to be an issue.
09:01It'll allow us to build in some capacity to take care of the additional credit requirements.
09:08Okay.
09:09One final word, sir.
09:14I heard you mention at the start of this conversation that a lot of things hinge on the performance
09:19of the economy.
09:20All global forums, global investors, etc., all believe that the numbers, I mean, for
09:27them, India, related to the rest of the world, is good growth.
09:30I'm just trying to understand related to what India has done in the last two, three years.
09:34The earnings growth has been stupendous, but we've had four years of very strong earnings
09:38growth for India Inc. at large.
09:40Do you think we can do an encore on GDP and earnings, or could there be a bit of a moderation
09:47because of a number of things, including the fact that the Election Code of Conduct takes
09:51away some of the business decisions for the first quarter at the very least?
09:55Yeah, some moderation may happen this year, but that moderation doesn't mean that we are
10:00slowing down overall.
10:02We are still doing much better than other countries, and in the G20 itself, we are doing
10:08very well.
10:09So, I think moderation is not a bad thing by itself, but the level of moderation is
10:14important.
10:15You know, a little bit here and there, adjustments are often welcome as, you know, one step backwards
10:20perhaps before taking two steps forward.
10:23And I think that is, from time to time, we have to look at that and see how to manage
10:27that situation.
10:28Got it.
10:29Mr. Davies, great talking to you.
10:31Thanks so much for being with us and giving us your thoughts.
10:34We really appreciate your time.
10:36Thank you very much, Neel.