Ujjivan Founder Flags Asset Quality, Attrition Concerns As CEO Resigns
A day after Nitin Chugh, resigned as chief executive at Ujjivan Small Finance Bank Ltd., founder Samit Ghosh highlighted two major concerns at the bank. The extent of provisions against bad loans over the last year and the high attrition rate at various levels at the bank were concerning, Ghosh told analysts over a call on Friday.
"We have always been very conservative in provisioning. The provisioning over the last one year has moved up and down, which is a matter of concern at the holding company (Ujjivan Financial Services Ltd.)," he said on the call.
Ujjivan Financial Services, where Ghosh is non-executive chairman, is the promoter of Ujjivan Small Finance Bank. Ghosh is also additional director on the board of the small finance bank.
Shares of the small finance bank fell to an all-time low after Chugh's resignation.
The board will now undertake a "tough" review of the bank's loan book to identify accounts where further provisioning is needed. Once the provisioning is completed, the bank will begin the recovery process from the following quarter, Ghosh said.
The second wave of the Covid-19 pandemic had impacted the bank's asset quality. As of June 30, Ujjivan Small Finance Bank saw its gross non-performing asset ratio jump to 9.8% from 7.1% in March. This was primarily because collection efficiency for the bank dropped from 94% in March to 72% in May.
The bank has also seen multiple exits at the ground level, mid-management and top management levels, which the holding company intends to stem immediately, Ghosh said.
Certainly a high attrition rate is a big contributor to asset quality problems. Whether in microfinance or retail, just like in a ship, when there is a crisis we have to have all hands on deck. A high attrition rate at such a time puts the ship in grave danger.Samit Ghosh, Non-Executive Chairman, Ujjivan Financial Services
Ghosh has been appointed as a common director between Ujjivan Financial Services and Ujjivan Small Finance Bank. He will be running the process to appoint a new CEO and will also manage the reverse merger between the two entities, in consultation with the Reserve Bank of India, he said.
Ujjivan Small Finance Bank's board will hold a board meeting on Aug. 25 to decide the future course of action. The board will appoint an officer on special duty who will take care of day-to-day operations at the bank till Chugh's exit on Sept. 30. This person will then be appointed as interim CEO, till the board is able to finalise a permanent CEO over the next three or four months, Ghosh said.
Carol Furtado is the top candidate to become the interim CEO. She has been part of Ujjivan since the beginning. We will consider her appointment at the upcoming board meeting.Samit Ghosh, Non-Executive Chairman, Ujjivan Financial Services
Furtado is one of the founding member of Ujjivan Financial Services, when it was formed in 2005. Ujjivan Financial Services transferred its microfinance business into Ujjivan Small Finance Bank when the bank was formed in 2017, as per regulatory guidelines. She is currently the MD and CEO of the holding company.
Chugh's exit was announced on Thursday, after the bank received his resignation letter. He took over as MD and CEO in May 2019 and previously headed HDFC Bank's digital banking initiatives.
When asked whether remuneration concerns were behind Chugh's exit, Ghosh said that it was not the case.
"People leave their jobs because they are not happy with the work they are doing, not because of remuneration problems. If there are any issues with remuneration, we will surely address them," Ghosh told analysts.
The bank's board and the holding company will continue to stay the course set under Chugh, Ghosh said. Going forward, Ujjivan Small Finance Bank's digital initiatives introduced by Chugh will be managed by officials who are a step below the CEO.
"We do not believe that the older management officials at the bank will leave now. Even the ones who are in their notice period will likely continue at the bank. The new people who came in under Nitin (Chugh) may feel uncomfortable and leave," Ghosh said.