In a measured regulatory move, the Reserve Bank of India has returned Ujjivan Small Finance Bank’s application for a universal banking licence, pointing to the need for further diversification in its loan portfolio. The regulator noted progress in reducing concentration risks but advised the lender to reapply after achieving a more balanced asset mix, especially by lowering dependence on microfinance loans.
Brokerages, however, remain optimistic. Axis Securities described the development as a “near-term speed bump” rather than a long-term setback. It highlighted that the bank has met most financial and regulatory criteria, including capital adequacy, profitability, and asset quality, with portfolio concentration being the only key concern. The feedback from the regulator is seen as a clear roadmap for future approval, not a rejection.
The Bengaluru-based lender has been gradually shifting towards secured lending over the past few years. While the share of secured advances has improved, it still falls short of the levels typically expected for a transition to a universal bank.
Analysts also underline the strategic benefits of such a transition. Moving away from the “small finance bank” tag could enhance brand perception, reduce funding costs, and improve scalability and profitability. An eventual licence approval could also act as a strong re-rating trigger for the stock.
Despite the current hurdle, the bank’s fundamentals remain stable. Brokerages expect steady growth, improving asset quality, and better profitability driven by operating leverage and continued diversification.
Data shows that microfinance exposure still accounts for 52% of Ujjivan SFB’s loan book, though it has been declining. In comparison, Bandhan Bank, during its transition phase, had microfinance exposure of 70–75% at its peak before reducing it to 35%.
Improving conditions in the microfinance cycle, including better collections and stabilising asset quality, are expected to support earnings. However, analysts stress that reducing reliance on microfinance and expanding secured lending will be key for regulatory approval.
Shares of Ujjivan Small Finance Bank declined around 1.5% intraday to Rs 59.45 as of 2:15 PM.
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