Bengaluru: Microfinance firm Ujjivan Financial Services Ltd announced its official transformation into Ujjivan Small Finance Bank Ltd on Monday. The Bengaluru-based bank, which was operating in pilot mode at five of its microfinance branches in the city, will extend banking services to all of its existing branches over the next six to eight months.
Ujjivan, which has about 3.5 million customers and a loan portfolio of Rs6,525 crore, will offer 5.5% to 8% interest on fixed and recurring deposits. That interest rate compares with an average offering of 7% at larger banks.
When it comes to savings, it will offer a range of benefits—such as biometric ATMs, a RuPay debit card, phone, internet and mobile banking—at the market interest rate of 4%. That’s in keeping with its plan of making savings an attractive proposition for its own borrowers who typically tend to use the informal sector, chit funds and the like, for their savings.
“In 2005 when we first started Ujjivan, our initial objective was (to) establish a bank because as a bank you could provide a full range of services to the unserved and under-served population in India. Unfortunately, at that time it was not possible and so we looked at microfinance institutions," Samit Ghosh, founder of Ujjivan and managing director and CEO of the new small finance bank, said at the launch.
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Ujjivan is the largest among five small finance banks that have or are making their debut. Equitas Small Finance Bank Ltd started operations in September, Utkarsh Small Finance Bank Ltd and Suryoday Small Finance Bank Ltd began in January and AU Financiers (India) Ltd is in the process of setting shop. But the biggest challenges facing all these small banks will be garnering deposits, human resource management as staff at microfinance firms are not used to mobilizing deposits, and technology, according to a Mint column on Monday.
Ghosh said that getting their customers to shift their savings from the unorganized sector to the organised sector was a challenge and said financial literacy was the key to overcome that obstacle. Ujjivan is also investing ₹ 400 crore in digital technologies over the next five years and is retraining existing staff to convert them into banking employees.
“We started this (retraining) process right after we got our license approval and we have been going through various stages of training. We are in the final phase now. (But) we will continue to take in a lot of people from outside also. Departments like liabilities, which is a new area of business for us, we would prefer people from outside with banking experience," said Carol Furtado, the bank’s human resources head.
The company currently has 457 branches in 24 states and is planning to open 66 new ones in financial year 2017-18. Like other microfinance companies, Ujjivan was also severely hit after the government’s demonetisation move in November. But repayment rates, which were at 90% end-November have now climbed to 97%.
“Our objective in the long run is that in five years’ time, the RBI gives us the option that we can go for a universal bank license. We probably will apply for the license so that we are able to build the leading mass market retail bank in India, which today is a market which is not fully served," Ghosh said.