Shares of Ujjivan Financial Services Ltd. rose the most in six weeks after its wholly-owned subsidiary was given a scheduled bank status.
The Reserve Bank of India (RBI) has granted a scheduled bank status to its subsidiary Ujjivan Small Finance Bank Ltd, the lender said in an exchange notification late Tuesday. Ujjivan had launched its small finance bank operations in February this year.
The scheduled bank status for the subsidiary means access to institutional deposits and easier funding facilities, which means lower cost of funding on the liabilities side for the small finance bank. With lower cost of funds and not much change in the asset mix, it could be incrementally positive for margins.
“The scheduled bank status will allow it to tap deposits from institutional sources in addition to the existing retail deposits. We expect liability accretion for Ujjivan to accelerate now that it can accept institutional deposits. Improvement in its microfinance portfolio remains the key thing to watch out for,” said Digant Haria, analyst at Antique Broking.
Haria has a ‘Buy' rating on the stock, with a price target of Rs 372.
Ujjivan Financial Services reported a net loss and a sharp rise in bad loans in the April-June quarter due to poor recovery of loans during the demonetisation period and higher operating expenses due to its transition from a microfinance lender to a small finance bank. It reported a wider-than-expected consolidated net loss of Rs 75 crore compared to a profit of Rs 19.4 crore last quarter.
Shares of the lender were trading 5.5 percent higher at Rs 343.95 at 12.54 p.m.
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