Ujjivan Small Finance Bank's (SFB) shares climbed over 2% to ₹34.5 on November 28, following a significant move to sell its non-performing assets (NPAs) and written-off loans worth ₹270 crore. This strategic decision aligns with the bank's ongoing efforts to optimise its financial portfolio amidst challenging conditions in the microfinance sector.
Strategic asset sale to boost efficiency
The bank finalised the sale of its stressed loan portfolio, including a written-off loans pool valued at ₹270.35 crore as of September 30, 2024, to an Asset Reconstruction Company (ARC). The deal, conducted under the Swiss Challenge Method, secured a consideration of ₹40.55 crore. This method, widely used for fair bidding processes, reflects Ujjivan SFB's focus on strengthening its balance sheet while navigating the pressures of the microfinance sector.
Despite these efforts, the microfinance industry has faced considerable stress this financial year, with overheating concerns impacting lending and repayment cycles. This development signals Ujjivan SFB's intention to realign its strategy and regain stability.
For those planning to invest in stocks, such moves indicate how financial institutions address challenges and reposition themselves in dynamic markets.
Recent performance and challenges
In the September quarter, Ujjivan SFB reported mixed results. While net interest income (NII) grew by 9.5% YoY, net profit declined by 23% YoY. Asset quality remained stable, with gross NPAs at 2.5% and net NPAs at 0.6%. However, the bank revised its loan book growth guidance downward and adjusted its net interest margin (NIM) projection to 8.6%, citing reduced activity in the microfinance segment.
This instability, combined with a 41% decline in stock value this year, contrasts with the NIFTY 50's 10% growth. For those who invest in stocks, this divergence highlights the importance of monitoring sectoral trends and individual company strategies.
Key takeaways
Stock insights: A 2% stock surge signals potential, but the 41% YTD decline urges caution for those looking to invest in stocks.
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