Utkarsh Small Finance Bank Merger With Parent To Be Completed In 12-13 Months, Says CEO Govind Singh

The merger of Utkarsh Small Finance Bank with parent Utkarsh CoreInvest Ltd. is set to get completed within the next 12-13 months, Chief Executive Officer and Managing Director Govind Singh told NDTV Profit.

"We had announced the merger and we got the swap rates as well. This week, itself, we have approached the RBI and stock exchanges. Normally, it is a matter of about 12-13 months for the process to be completed," Singh said on Thursday, on the sidelines of the bank's announcement of Mary Kom and Sunil Chhetri as brand ambassadors.

Last month, the board of Utkarsh Small Finance Bank approved the merger with its parent company, which aims to simplify operations, enhance shareholder value, and create a stronger entity.

On the stress building up in the microfinance institutional loan segment, Govind said that the bank plans to reduce its MFI book size by 4-5% in the current financial year. He expects some impact on asset quality because of delinquencies in the microfinance space.

"The ratio of microfinance book should come down and we have been seeing that it is slowly coming down. At the end of June, it was almost 58-59% as against 100% seven years back," he said. "We expect this 4-5% decline in microfinance book to continue so that we have a much balanced book."

He also said that the bank is normalising lending rates to microfinance institutions and that it will not have much impact on its profitability.

On profitability, he expects net interest margins of the bank to remain above 9% in the medium term. "We don't foresee much challenge if the cost of funds comes down because we can pass on that benefit to the customer."

Speaking about the recent meeting of small finance banks with RBI Deputy Governor Swaminathan J in Bengaluru last week, Govind said that the guidance from the central bank is to manage controls and do advances out of deposits only. The lenders were asked to avoid market borrowings as it is riskier, he added. "Also, don't go for bulk deposits because it becomes more volatile. So, that is the direction from RBI."

In his speech, Swaminathan had urged the boards of small finance banks to assess whether there is an overdependence on high-cost term deposits or bulk deposits from a limited number of institutions.

"Additionally, they should evaluate any substantial asset exposures that could adversely impact the bank if they were to sour. These are essential aspects that the Board and its Risk Management Committee must scrutinise to ensure long-term stability and resilience," Swaminathan had said.

Shares of Utkarsh Small Finance Bank closed 0.52% higher at Rs 46.06 apiece on the NSE, compared to a 2.12% decline in the benchmark Nifty 50.