Ujjivan Small Finance Bank Shares Drop Nearly 2% as Board Offloads Bad Loans Worth ₹365 Crore
Shares of Ujjivan Small Finance Bank fell nearly 2% in early trading on Monday, February 24, following the board’s decision to sell non-performing assets (NPAs) and written-off loans worth ₹364.51 crore to an asset reconstruction company. The board approved the move on Friday, February 21, as part of the bank’s efforts to clean up its balance sheet and improve asset quality.
Details of the Bad Loan Sale
The bad loans being offloaded are primarily from the bank’s microfinance portfolio. Out of the total ₹364.51 crore, ₹294.51 crore is classified as NPAs, while the remaining ₹70 crore has already been written off. The bank has provided an overall provision of 66.51% on this pool, reflecting its proactive approach to managing credit risk.
At 9:30 AM, Ujjivan Small Finance Bank’s shares were trading at ₹31.79 on the National Stock Exchange (NSE), down 1.73%. The stock had previously touched a 52-week low of ₹30.88 on January 28, 2025.
In an exchange filing on Friday, the bank stated, “We will separately intimate as and when the aforesaid proposed deal is completed.”
Deteriorating Asset Quality
The bank’s asset quality has shown signs of stress in recent quarters. For the October-December quarter of FY25, gross NPAs rose to 2.68% of gross advances, up from 2.18% in the same quarter of the previous fiscal year. Net NPAs also increased to 0.56% from 0.17% a year earlier.
Provisions (excluding tax and contingencies) surged to ₹223 crore in Q3FY25, compared to ₹63 crore in Q3FY24, reflecting the bank’s efforts to address rising bad loans.
Financial Performance
Ujjivan Small Finance Bank reported a 64% year-on-year decline in net profit for Q3FY25, with earnings dropping to ₹103 crore from ₹300 crore in the same period last year. The decline was primarily attributed to higher provisions for bad loans.
However, the bank’s total income showed resilience, rising to ₹1,763 crore in Q3FY25 from ₹1,655 crore in Q3FY24. The capital adequacy ratio stood at 23.90% as of December 2024, slightly lower than the 24.37% recorded in the previous year.
Market Reaction and Outlook
The decision to offload bad loans is seen as a strategic move to strengthen the bank’s financial health and focus on growth. However, the market’s immediate reaction reflects investor concerns over the bank’s asset quality and profitability challenges.
Analysts will closely monitor the bank’s progress in resolving its NPA issues and its ability to sustain income growth amid a challenging macroeconomic environment.
*Disclaimer: This article is for informational purposes only and should not be construed as financial or investment advice. Readers are advised to conduct their own research or consult a financial advisor before making any investment decisions.