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Edited Transcript of UJJIVAN.NSE earnings conference call or presentation 3-Aug-19 5:30am GMT

Q1 2020 Ujjivan Financial Services Ltd Earnings Call

BANGALORE Aug 6, 2019 (Thomson StreetEvents) -- Edited Transcript of Ujjivan Financial Services Ltd earnings conference call or presentation Saturday, August 3, 2019 at 5:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Ittira Davis

Ujjivan Financial Services Limited - MD, CEO & Director

* Rajat Kumar Singh

Ujjivan Financial Services Limited - Head of Strategies and Planning

* Samit Kumar Ghosh

Ujjivan Small Finance Bank Limited - MD, CEO & Director

* Sneh Thakur

Ujjivan Financial Services Limited - Head of Credit

* Upma Goel

Ujjivan Small Finance Bank Limited - CFO

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Conference Call Participants

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* Aashish Upganlawar

* Abhishek Murarka

IIFL Research - VP

* Amit Nanavati

Nomura Securities Co. Ltd., Research Division - Associate

* Gaurav Jani

Centrum Broking Limited, Research Division - Research Analyst

* Gaurav Maheshwari

* Karthik Chellappa

Buena Vista Fund Management, LLC - Investment Analyst

* Manish Ostwal

Nirmal Bang Securities Pvt. Ltd., Research Division - Senior Research Analyst

* Nishant Shah

Macquarie Research - Research Analyst

* Pankaj Agarwal

AMBIT Capital Private Limited, Research Division - VP of Research

* Praful Kumar

Pinpoint Asset Management Limited - Portfolio Manager

* Rohan Mandora

Equirus Securities Private Limited, Research Division - Analyst

* Sameer Shah

Valuequest Investment Advisors Private Limited - Director of Research & Portfolio Management

* Sonia Lalwani

* Venkat Subramanian

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to Ujjivan Financial Services Limited Q1 FY '20 Earnings Conference Call hosted by IIFL Securities Limited. (Operator Instructions) Please note this conference is being recorded.

I now hand the conference over to Mr. Abhishek Murarka from IIFL Securities Limited. Thank you, and over to you, sir.

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Abhishek Murarka, IIFL Research - VP [2]

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Yes, thanks. Good morning, everyone, and welcome to the conference call to discuss the first quarter financials of -- for Ujjivan Financial Services. We thank the management team for giving us the opportunity to host the call.

From the Ujjivan team, we have Mr. Ittira Davis, Managing Director and CEO; and Mr. Deepak Khetan, Head of IR.

And from Ujjivan Small Finance Bank, we have Mr. Samit Ghosh, Managing Director and CEO; Mr. Sanjay Kao, Chief Business Officer; Mrs. Upma Goel, Chief Financial Officer; Rajat Singh, Business Head for Micro Banking and Rural Banking; Mr. Murli Manohar, National Manager, Financial Planning and Analysis; and Sneh Thakur, Head of Credit and Collections, Micro Banking.

So I'd now hand over the call to Mr. Samit Ghosh to take you through some opening remarks and the financials, and then we will follow that up with the Q&A.

Thank you, and over to you, sir.

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Samit Kumar Ghosh, Ujjivan Small Finance Bank Limited - MD, CEO & Director [3]

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Thank you, Abhishek. Good morning, everyone on a Saturday morning. The only thing is that our news is happy so I think even though it's a Saturday morning.

Last -- this quarter, we followed a consistent note in terms of our performance from the previous quarter with -- the momentum started from the June quarter, which was the last quarter of last financial year and our performance has been consistently very good. We are happy with the performance with this quarter and the first -- despite the fact that the first quarter is usually we've seen a low growth, but this quarter we delivered very strong results. The paramount concern looming in front of us and all our investors and analysts is that of the listing of the bank. I'd like to assure the investors that we are working towards listing of the bank on time as per required by the RBI, we will complete the listing definitely by January 31 next year.

Our Board of Directors under the prevailing circumstances and to meet the regulatory time lines has approved the listing of the bank via IPO route subject, of course, to the market conditions and also any other external developments, which may transpire.

In doing so we will take care to protect the interest of our existing shareholders of Ujjivan Financial Services Limited and give them an opportunity to participate at every level in the bank's listing. Ittira will delve further on this topic in his address.

Coming back to our business performance in this first quarter, which was an exceptional quarter for us, continuing to deliver as promised, we posted a PAT of INR 94 crores, up 105% over the first quarter of the previous year, highest ever quarterly PAT for -- in our history. This jump was on account of continued robust growth in our business -- gross advances, which now is close to INR 12,000 crores. Our cost control measures and profit on the sale of priority sector lending certificate, PSLC, which normally takes place in the first quarter of every year.

As we have indicated over our last earnings call, we are working in earnest on cost control measures and this quarter is already showing results.

Our cost-to-income ratio has come down to 64% versus 78% in the fourth quarter of last financial year.

During the quarter, all our business verticals have done exceptionally well with all-around performance. Asset business has done disbursements of INR 2,959 crores, which is up 41% as compared to the first quarter of the previous financial year. This led to a gross advance growing by 51% compared to the first quarter of last financial year to INR 11,734 crores. Majority of the growth in gross advance was driven by micro banking, which grew by 37% as against the first quarter of the previous year. This growth was fueled by new product launches, opening of new areas for existing branches, process improvisation, improvement in productivity of our sales force, growth in the individual lending and increased borrower base. We continue to focus on building ourselves as a mark-to-market bank. Keeping this objective in mind, we have launched Sampoorna Banking program by which we offer a whole range of financial products to the family members of our existing micro banking customers. We expect to have a deeper and more focused customer engagement through this program. Group loans and individual loans have grown by 33% and 36%, respectively versus the first quarter of last year. Rural banking portfolio improved spectacularly by 591% of growth on a much lower base versus the first quarter of the previous year at INR 287 crores led by a divestment of INR 115 crores in the June quarter of this year.

We continue to focus on our micro banking and rural banking business and look forward to expand our products, [profit] and customer base. On affordable housing segment -- our affordable housing segment has achieved the (inaudible) in this quarter in terms of gross advances. Continued focus in new regions and optimum use of technology helped in exhibiting a handsome growth of 142% versus the first quarter of the previous year. And our micro and small business too has a field that typically marked with gross advance of INR 686 crores, up 145% versus first quarter of the previous year. With launch of new products, we are now diverting largest accessories secured loans to MSC customers. Going ahead, we are emphasizing towards building a secure (inaudible) this quarter was secured. Both MSC and affordable housing business continued to expand rapidly by way of increasing their geographical footprint through existing and new branches across the country and strengthening the range of services by adding new products. We expect these 2 businesses to breakeven this year and start contributing to our overall return on assets.

Lending to NBFC sector is in the growth of our asset book. Benefiting from the current tight liquidity position in the market and our strong balance sheet, we are lending to NBFCs largely in the micro finance business. We focus only on rated corporates without ALM mismatch. The segment had a very good last quarter with disbursement of INR 148 crores. With gross advances of INR 358 crores, the segment has grown 60% over the previous quarter.

Moving to deposits, retail banking is one of our most important focus areas. The branch conversions

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up by 357% over the first quarter of the previous year. This forms 43% of our total deposits as of 30th June 2019. Through very low-cost stable source of funding, we continuously work towards growing our CASA base.

As of first quarter this year, our CASA book stands at INR 827 crores, up 247% compared to the first quarter of previous year. This quarter, our CASA was 10.4% of our total deposit, up from 6.3% in the first quarter of the previous year.

Continuing to be in the growth mode, we have identified segments and developed extensive banking solutions for our customers. Our customers now can choose from a bouquet of products we offer, which includes top-notch business edge customer current accounts, having a number of value-added benefits like free POS installation, flexible cash deposits and simple, yet best-in-class corporate Internet banking service. We have introduced a feature-rich corporate salary program, which is highly flexible and efficient to handle bulk disbursement of salaries for a huge employee base. We have basically moved from individual product sales to become more complete banking solution provider. Along with these, we have started working on deepening our relationship with micro banking clients by focusing on financial literacy and linking their accounts with DDT. Our new initiative Sampoorna Banking is also designed to focus on the family members of our customers, who are largely been served by PSU banks. We plan to provide better products and consistent service to these clients to win them over.

Our credit quality continues to be stable. GNPA levels have reduced to 0.8% from 0.9% in the -- in March 31, 2019. However, our portfolio at-risk has seen some increase from INR 167 crores as of 31st March 2019 to INR 206 crores, largely increase in par is on account of the Cyclone Fani that hit Odisha.

Speaking about Odisha, we have been prudent in assessing the overall scenario and have taken extensive relief measures to overcome this natural calamity. This will gradually come back to normalcy.

As of June 30, the total number of our banking outlets operated by us is 474. Out of these 474, 120 are in unbanked rural areas. The percentage of [BOs] in unbanked rural locations stood at 25.3% as of end of June, which is in full compliance with the RBI regulations. No new branches were opened in the first quarter of this year as we were awaiting the approval from RBI till end of June. We operate a network of 378 ATMs and 9 automated cash recyclers as of 30th June 2019.

Overall, I would like to reiterate that the business growth momentum continues in our sector, despite general economic slowdown. Based on the investments we have made in the last 2 years, the business deals are scaling up and we are able to control our costs, which is reflected on our bottom line and our cost to income ratio. We are moving towards the goal of becoming a mark-to-market bank with strong retail franchise and a wide customer base. A lot of growth would come through our digital initiatives, which will not only expand our reach manifold, but also will make it easier and convenient for our customers.

Exciting times ahead of us as a growing business. Now I'd like to hand over to Ittira to give you his views on the performance of the company. Thank you very much.

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Ittira Davis, Ujjivan Financial Services Limited - MD, CEO & Director [4]

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Thank you, Samit. Good morning to all participants.

Can you all -- can you hear? Because I just wanted -- the line went mute suddenly. So can you just confirm everybody is listening to us?

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Operator [5]

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Yes, sir, we can hear you.

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Ittira Davis, Ujjivan Financial Services Limited - MD, CEO & Director [6]

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I'll go straight to the bank listing, which is one of the small finance bank licensing requirements prescribed by the RBI. Ujjivan Small Finance Bank, the wholly-owned subsidiary of the company is required to be listed by January 31st, 2020.

Under the prevailing circumstances, the Board of the bank in their meeting held on July 30th, 2019, has approved a proposal for an initial public offering of its equity shares subject to receipt of requisite regulatory approvals and prevailing market conditions.

Both UFSL and USFB continue to evaluate other options to achieve listing of USFB equity shares in accordance with the guidance from RBI and all the applicable laws. USFB is committed to complying with the listing conditions within the stipulated time lines.

I would also like to provide you some background on what has led us to take this decision.

Over the past few months, we have evaluated multiple options, including various restructuring ideas as UFSL and USFB, scheme of arrangements, issuing shares via trust route, listing on IGP and acquisition of a listed entity. We decided not to proceed with these options due to 1 or more of the following challenges: first, getting a buy-in of regulators like RBI and SEBI; 2, lengthy time lines leading to missing the June -- sorry, January 31, 2020 cutoff date; and 3, significantly high cash outflow in the form of taxes and stamp duty. Due to these challenges and keeping in mind the requirement to get listed within the stipulated time line, we have initiated proceedings to go for a listing of the bank through the IPO route. This is also to give access to fresh capital for the bank that is required for growth of our business.

For the IPO, we have put together a strong team comprising merchant bankers, legal counsel and auditors.

As I mentioned in our last earnings call, USFB has entered growth trajectory, and along with the growth, we are focused on containing cost and improving profitability. We continue to steadily build a stable retail deposit base. Some of the bank's first quarter '20 highlights and percentage changes over the previous year first quarter. Net profit is up 104.8%; net interest income is up 44%; overall disbursements, up 41%; gross advances, up 51%. The net interest margin is at 10.5% and the capital adequacy ratio for the bank is 19% with Tier 1 at 18.4%.

Now there is a little bit of issue to be understood in these numbers. The holding company, or Ujjivan Financial Services Limited, prepares its accounts on the Ind AS basis, and therefore, the numbers will look different to the bank. Now it is important that for comparison bank to bank or across the industry that the Ujjivan Small Finance Bank numbers be looked at from the IGAAP perspective and that is how those numbers have been presented. So please keep that in mind, when you're looking at the numbers or raising questions.

There is one thing I'd like to add before I stop. I'd like to clarify that since USFB has initiated the IPO process, we cannot give forward-looking statements. Our answers in these situations would be more qualitative in nature. We request you to limit your queries to the first quarter performance.

I would like to stop here and give you more time for questions and answers. Thank you, Abhishek, and the IIFL team for hosting this interaction.

I will now hand you over to the moderator to start the Q&A session.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We have our first question from the line of Sameer Shah from Valuequest.

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Sameer Shah, Valuequest Investment Advisors Private Limited - Director of Research & Portfolio Management [2]

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Congratulation on a good set of numbers. 2 questions. One, you said that you did not open any branches in this quarter because you were waiting for RBI permission. So if you can you just clarify what it is? And is that the reason for lower cost in this quarter? And then full year guidance would still -- on the cost, would still be that 30% higher than last year?

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Ittira Davis, Ujjivan Financial Services Limited - MD, CEO & Director [3]

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Yes. The branch opening has been -- has not happened in this quarter, but that's not the only reason for our performance. It's a combination of a much better income as well as a combination of -- we put in practices and we put in base by which we had reduced cost across our different business verticals and functions to deliver what we have.

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Sameer Shah, Valuequest Investment Advisors Private Limited - Director of Research & Portfolio Management [4]

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So basically, then this is the cost trajectory that we will follow? This is a...

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Samit Kumar Ghosh, Ujjivan Small Finance Bank Limited - MD, CEO & Director [5]

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No. I just want to add that we have to wait to get RBI's approval to open these branches. So we were waiting for that, and that was slightly delayed. We've got the approvals now and we've started opening the branches already. And as far as the cost go, we had in -- we had set a -- the branches were already set up. So all the setup cost, people hiring cost, which was already there. So it's not -- the costs were there, but the branches have not started. So to that extent, I think you will see better results hopefully.

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Sameer Shah, Valuequest Investment Advisors Private Limited - Director of Research & Portfolio Management [6]

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Yes. But on an absolute basis also quarter-on-quarter, the other expenses are down. So is that -- that's why I've -- because of the cost controls that we have done, right?

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Samit Kumar Ghosh, Ujjivan Small Finance Bank Limited - MD, CEO & Director [7]

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Right.

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Sneh Thakur, Ujjivan Financial Services Limited - Head of Credit [8]

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Yes.

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Sameer Shah, Valuequest Investment Advisors Private Limited - Director of Research & Portfolio Management [9]

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All right. So that is -- that can sustain. So on an absolute basis, we had guided that INR 2,000 crore cost will go up by 30% year-on-year. So would that -- would there be kind of lower cost for the year now? Because if I annualize it, even with slight increase, the number will be quite lower than the INR 1,300 crores-plus?

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Ittira Davis, Ujjivan Financial Services Limited - MD, CEO & Director [10]

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Sameer, we cannot give you a guidance or a forward-looking statement. What we can tell you is refer to whatever we said on the last call. We do not change any cost-to-income ratio guidance there.

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Sameer Shah, Valuequest Investment Advisors Private Limited - Director of Research & Portfolio Management [11]

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Okay. Right. All right. And my second question is on the NBFC lending or the other corporate or say nonretail lending, what is -- what are the thoughts on that? I mean how much would be limited to? And would it be opportunistic? Or would it be a part of the core business strategy?

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Samit Kumar Ghosh, Ujjivan Small Finance Bank Limited - MD, CEO & Director [12]

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No. I mean we have -- as far as lending to NBFCs, it's going to be a limited lending only. We have a certain cap beyond which we will not go. And it will not be significant portion of our portfolio. As far as retail lending is concerned, actually you've not seen -- you've not -- I mean the personal loan business has just started and it's still very small. And our vehicle finance also has, I mean, just about started. So those are definitely that you'll see growth in those businesses as we go ahead. Okay?

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Sameer Shah, Valuequest Investment Advisors Private Limited - Director of Research & Portfolio Management [13]

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So it will be predominantly retail and secured, that is what it is and...

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Samit Kumar Ghosh, Ujjivan Small Finance Bank Limited - MD, CEO & Director [14]

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Can we give chance to others to speak, please?

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Sameer Shah, Valuequest Investment Advisors Private Limited - Director of Research & Portfolio Management [15]

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All right.

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Operator [16]

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(Operator Instructions) We have next question from the line of Praful Kumar from Pinpoint Asset Management Company.

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Praful Kumar, Pinpoint Asset Management Limited - Portfolio Manager [17]

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Congratulations on very strong numbers. So we are assuming that your guidance that you gave in last concall holds. So just wanted to get some more flavor on especially West Bengal and Odisha market because there's lot of discussions around those 2 markets in terms of overlending happening. So can you just throw some light on how you are seeing those 2 markets?

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Ittira Davis, Ujjivan Financial Services Limited - MD, CEO & Director [18]

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Yes. So West Bengal, we have our ears to the ground, but so far we have not seen any challenges. We are keeping eye on political unrest in some of the area, which is -- if it is happening. So far our numbers are robust even the -- our on-time repayment rates are consistent for last 6 months. So in West Bengal, there is -- we are not seeing any challenges as of now. Odisha, for us, is a very small market and we are present in very limited geography. And those geographies we are not impacted apart from the Fani disruption, which happened in May. So that's the update on West Bengal and Odisha.

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Praful Kumar, Pinpoint Asset Management Limited - Portfolio Manager [19]

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Got it. And finally, we all are seeing a significant macro slowdown. So in such scenario growing 50%, is an achievement. But are you looking at any heating up happening there because you want to slowdown growth? Or you think this segment of the economy will not be impacted for this secondary whatever effects that we call it. So do you think about that?

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Samit Kumar Ghosh, Ujjivan Small Finance Bank Limited - MD, CEO & Director [20]

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So generally, micro finance is not that impacted by all these -- the slowdown of the economy. But definitely, we will keep an eye open because if people start losing jobs, et cetera, then it definitely has an impact on us. So this is something we've not seen so far, but we'll keep an eye open for that, especially in the urban areas, et cetera. Job loss, obviously, leads to stress on the portfolio quality.

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Praful Kumar, Pinpoint Asset Management Limited - Portfolio Manager [21]

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And 1 small data point. What was the new customer addition this quarter? So if you can give that number?

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Ittira Davis, Ujjivan Financial Services Limited - MD, CEO & Director [22]

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It was close to 3 lakhs.

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Praful Kumar, Pinpoint Asset Management Limited - Portfolio Manager [23]

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3 lakhs?

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Ittira Davis, Ujjivan Financial Services Limited - MD, CEO & Director [24]

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Yes.

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Operator [25]

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We have next question from the line of Venkat Subramanian from Organic Capital.

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Venkat Subramanian, [26]

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Growth normally is a function of our risk perception in the short- and medium-term and also demand on the ground. But in our case, is it more a function of our calibration from our side rather than anything else? Because we have seen some lumpy growth and lack of growth in some quarters.

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Ittira Davis, Ujjivan Financial Services Limited - MD, CEO & Director [27]

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Can you repeat the question, please?

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Venkat Subramanian, [28]

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I'm saying growth in our case has been actually quite lumpy. It's been up and down over the last 5, 7 quarters. Growth is normally a function of our risk perception in the short- to medium-term on our addressable markets and also the demand on the ground. But in our case, is it more a function of how we calibrate growth based on how we perceive risk rather than demand on the ground? For instance, this quarter has been fairly high because you probably let go a little bit in terms of your risk perception. Is that the right way to look at it?

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Samit Kumar Ghosh, Ujjivan Small Finance Bank Limited - MD, CEO & Director [29]

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No, no. I think the last 2 quarters, our growth has been very good and that's largely because all the preparatory work which we did in the previous 2 years and built the infrastructure and the branches and the distribution, et cetera, finally started seeing dividends. But -- and you're right in the sense that we will keep a close watch over how the economy performs and what impact has on our segment of customers, this is something we'll keep a close watch. Generally, as in the micro finance customer base, it doesn't impact that much, but in the urban areas, as I mentioned, if people lose jobs and things like that as we saw during demonetization, et cetera, then obviously it has an impact on our portfolio. So we'll keep close watch, especially in the urban areas.

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Venkat Subramanian, [30]

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How do you see the current quarter growth of new customers? Have you lent more to existing customers this quarter? Because we also calibrate that on a quarterly basis as we see it?

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Ittira Davis, Ujjivan Financial Services Limited - MD, CEO & Director [31]

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The breakup of fresh and repeat loan is there in our PPT. It's more or less similar to what it was there last quarter. I think around 43% was the fresh loan and the rest was repeat one, which is quite healthy.

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Venkat Subramanian, [32]

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Okay. My second question is on your digital preparedness. We are a young bank and therefore a lot of our current investment on software et cetera, is finally (inaudible). So to that extent we are probably a little better prepared for data mining, et cetera. And also in the context of Mr. Nitin Chugh joining, are we better prepared for data mining and data analytics and digital banking overall than some of our peers?

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Samit Kumar Ghosh, Ujjivan Small Finance Bank Limited - MD, CEO & Director [33]

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So on the digital side, 2 sides of it. One is on the front-end like mobile banking, Internet banking, et cetera, and there I think we've done significant amount of work, and we are ready to go ahead. There was some disruption because of the whole controversy relating to Aadhaar, the thing which has now been sorted out. So -- and we have made the appropriate changes. So in terms of raising both loans and in terms of deposits digitally, we are now completely ready and ready to go. On the back-end, especially on the analytics side, it takes a little time. We've started working on that a few months ago, and we only target now building up scorecards and et cetera. I think you will see the impact of that more in the future. But as far as the front-end is concerned in terms of mobile banking, Internet banking, and corporate Internet banking, et cetera, we are fully ready from that perspective.

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Operator [34]

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We have next question from the line of Rohan Mandora from Equirus Securities.

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Rohan Mandora, Equirus Securities Private Limited, Research Division - Analyst [35]

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One is with respect to, have you finalized that SFB listing over to an IPO route? In order to ensure that the existing shareholders' interest is maintained, what are the various options that are under consideration under the IPO route?

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Unidentified Company Representative, [36]

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Sorry, could you repeat the last part of your question, for the existing shareholders?

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Rohan Mandora, Equirus Securities Private Limited, Research Division - Analyst [37]

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What are the various options which are under consideration so that their interest is maintained, then they get the best possible deal. So what is that, that we are evaluating in terms of various options under that?

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Unidentified Company Representative, [38]

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Yes. For existing retail investors in the holding company, we are setting aside as permitted by SEBI 10% of the issue, which will be available to them at a discount, which is maximum discount permitted is 10%. That is for the retail shareholders who currently have 2 lakhs in holding or below. As far as other shareholders, we have -- we are considering 2 options. One is a pre-IPO and the other is anchor clients. So it's -- any of the existing shareholders who want to join either of these groups, they are welcome to contact us.

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Rohan Mandora, Equirus Securities Private Limited, Research Division - Analyst [39]

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Got it. Sir, there will not be any discount on the price issue -- price to hold the existing shareholder? Will that understanding be (inaudible) to that?

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Ittira Davis, Ujjivan Financial Services Limited - MD, CEO & Director [40]

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No, no.

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Samit Kumar Ghosh, Ujjivan Small Finance Bank Limited - MD, CEO & Director [41]

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So the retail investors will get a 10% discount as permitted by SEBI. And the others, institutionals and all, they'll get into either pre-IPO and/or at the later stage with -- as an anchor, yes? We are also doing for our employees employee stock purchase scheme because our employee -- a large number of employees are also our investors and we will also do an [e-SOC] scheme. So they will also be able to participate in the listing of the bank.

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Unidentified Company Representative, [42]

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Rohan, just (inaudible) as Mr. Ghosh and Mr. Davis mentioned in their address initially on the call, these are preparatory work right now and the final details will be drawn-down once we finalize the options.

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Rohan Mandora, Equirus Securities Private Limited, Research Division - Analyst [43]

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Right. And second question on like, in the opening remarks, management alluded to that there are some specific cost control measures that you have undertaken? So if you could describe what were those measures? And what kind of benefit we have seen during the quarter, like, some contribution on that?

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Sneh Thakur, Ujjivan Financial Services Limited - Head of Credit [44]

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So as indicated overall on last earning call, we are working towards a strong cost control measures. And in this quarter, we are already showing the results. Some of the cost-saving initiatives which we have taken are -- is revisiting and renegotiating for all contracts and predominating the long-term contract. We are also looking at introducing the robotic process automation to take care of our repetitive reconciliation processes, which will help us in improving the overall productivity. Our planning and tie-ups are going on with the specialized agencies for process reengineering and design as well as for the supply management. These are the broad 3, 4 cost-saving initiatives, which we have taken and which is showing results in the Q1.

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Rohan Mandora, Equirus Securities Private Limited, Research Division - Analyst [45]

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And any contribution of the benefits out of these, like, what extent of savings we would have done on a differential basis?

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Sneh Thakur, Ujjivan Financial Services Limited - Head of Credit [46]

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So as far as quarter 1 is concerned, we are seeing a substantial saving, which is in the range of 10% and this is what we can speak about the quarter 1 savings.

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Operator [47]

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We have next question from the line of Manish Ostwal from Nirmal Bang Securities.

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Manish Ostwal, Nirmal Bang Securities Pvt. Ltd., Research Division - Senior Research Analyst [48]

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Congratulation on strong quarter operating performance during the quarter. I have a question on the listing of Ujjivan SFB. So, sir, given the high growth of Ujjivan SFB, what is our comfortable level of leverage in likely equity dilution in that entity?

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Unidentified Company Representative, [49]

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Yes. I mean we have to -- the SEBI requires us to have a minimum listing of 10%. So we are considering that. And also, we are looking at whatever capital is required for the next couple of years. So those are all considerations, which are being looked at. And once we finalize it, we will let you know.

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Manish Ostwal, Nirmal Bang Securities Pvt. Ltd., Research Division - Senior Research Analyst [50]

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Sure, sir. And what is the time line? Will we be able to finalize these -- all those things, sir?

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Unidentified Company Representative, [51]

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We have -- I mean January 31 is the deadline. So well within that. So if everything goes well, in November, we'll be able to come out with the IPO.

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Manish Ostwal, Nirmal Bang Securities Pvt. Ltd., Research Division - Senior Research Analyst [52]

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Sure. And second, a small data point. Can you provide us breakup of other income during the quarter?

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Sneh Thakur, Ujjivan Financial Services Limited - Head of Credit [53]

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Other income comprises of processing fees INR 37 crores; PSLC income, INR 41.6 crores; income from bad debt recoveries, INR 7.6 crores; income from third-party sources fee income, INR 3.7 crores; and miscellaneous income of INR 10 crores, totaling to INR 100 crores.

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Manish Ostwal, Nirmal Bang Securities Pvt. Ltd., Research Division - Senior Research Analyst [54]

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And securitization income during the quarter?

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Sneh Thakur, Ujjivan Financial Services Limited - Head of Credit [55]

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Securitization income is INR 2.7 crores.

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Operator [56]

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We have next question from the line of Nishant Shah from Macquarie.

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Nishant Shah, Macquarie Research - Research Analyst [57]

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Just on the listing of SFB. You -- in your -- to some of your media interviews, you had indicated that the RBI has asked all the SFBs to come together and present the paper as to what kind of listing structure or how to avoid the dual-listing structure. So could you just talk a little bit about that? Like what was the RBI observations over there? Like why -- what is their line of thought? Are they going to allow you to collapse the holdco at a later date? Any thoughts over there that you can point out, please?

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Samit Kumar Ghosh, Ujjivan Small Finance Bank Limited - MD, CEO & Director [58]

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So when we met the governor to write a paper on various issues which SFBs have said, and obviously this capital structure was one of the major issues which is being faced by a majority of the SFBs. And as you know, the Reserve Bank is very happy with the way SFBs have performed. And this is the only category they are now putting it on license on tap. So if in order for that, on the licenses on tap, they will sort our feedback in terms of any kind of changes which would be required to make life somewhat easier and better for the future SFBs. And we went and gave that feedback to them. And this issue, this whole issue of allowing reverse merger, as they have indicated to us in their letter, that they could not give us an approval at this stage for the reverse merger at the end of 5 years, but that they would look at it closer to that time. So they have kept that door open for that.

And I think when we discuss with them, they are very open to it. And as a category, we are hoping that they will allow us to reverse merge. And they were positive about it, but I think this guideline is going to come out in August, this month. So we're looking forward to seeing how -- because we had asked them to make it more -- I mean give it more clarity in the sense that the promoter would be able to reduce to 0 at the end of the 5-year period and have a maximum of [36%] or something. So I think they're going to clarify that in the new guidelines that will be set up. But generally, they were very positive. But this is something, as far as we are concerned, we have to take this up closer to the 5-year period. But given their feedback, we are very positive about that, and we will be working on that once we list the bank.

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Nishant Shah, Macquarie Research - Research Analyst [59]

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Right. So hypothetically speaking, if the August paper allows you to collapse the holdco, like even now, would you just shelve the IPO plans and just like collapse it?

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Samit Kumar Ghosh, Ujjivan Small Finance Bank Limited - MD, CEO & Director [60]

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I think that is not -- that is out of the question, that they are very clear that we have to -- but there will be more clarity whether in terms of long enough to reverse merge and collapse the whole at the end of either 5-year period or a 6-year period. [It will be] end of 5-year or 6-year because they'll come up with that set of guidelines. But as far as we are concerned, I think 5 years is the deadline, and they seem very positive and open about it. So we are very hopeful.

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Operator [61]

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We have next question from the line of Karthik Chellappa from Buena Vista Fund Management.

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Karthik Chellappa, Buena Vista Fund Management, LLC - Investment Analyst [62]

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Sir, my first question is, if I were to just look at your average ticket size across products, in group loans and micro individual loans, the increase year-on-year is somewhere to the tune of 6% to 10%. Whereas if I look at the MSE book, that average ticket size has almost doubled. And in Affordable Housing, that is almost up around 19% to 20-odd percent. So could you take us through what was the reason for such steep increases in the ticket sizes, especially in the housing and the SME segment?

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Ittira Davis, Ujjivan Financial Services Limited - MD, CEO & Director [63]

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Okay. So in the SME segment or the MSE segment, as you say it, we've moved from being just from being secured and unsecured lender to hopefully secured lender. So in this quarter, 100% of our lending has been secured, and that obviously has impacted our ticket size. Number one.

Number two, we've also filtered products by which we are taking additional exposure. And we are going up to -- here, we used to take exposure up to INR 50 lakhs and then we've progressively taken that up to INR 2 crores. So we -- so as a result of which, you've seen the increase in ticket sizes in the MSE segment.

On the housing side, we think we have basically created additional focus on certain segments, which are again high-ticket-size segments, particularly ready purchase, and ready purchase has gone up as part of our product mix. So with that, the ticket sizes on housing -- the average ticket size on housing have also gone up.

And this is something that we've done progressively. We figured out that over a period of time, we have a better -- as in the markets that we've gone into. And the markets, the way they have progressed, this is -- these are the segments within each that we are going. Additionally, in the housing segment, with ready purchase, we also get the benefit -- or our customers get the benefit of the Pradhan Mantri Awas Yojana. So that's some additional benefit that comes in. And therefore, we -- that becomes an additional piece that we can introduce, transfer that or translate that benefit to our customers.

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Karthik Chellappa, Buena Vista Fund Management, LLC - Investment Analyst [64]

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On a like-for-like basis, what would be the dilution, the yield for both the segments because of the enlarged ticket sizes?

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Rajat Kumar Singh, Ujjivan Financial Services Limited - Head of Strategies and Planning [65]

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Sorry, come again?

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Karthik Chellappa, Buena Vista Fund Management, LLC - Investment Analyst [66]

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On a like-to-like basis, because you're going into higher ticket sizes and more secured on the MSE side and ready to occupy on the housing side, what will be the dilution in the yield? I would presume they are coming at slightly lower yields than what it used to be in the past when you used to do the INR 5 lakh to INR 6 lakh ticket size or so?

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Rajat Kumar Singh, Ujjivan Financial Services Limited - Head of Strategies and Planning [67]

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So whatever yield pressure is there, it's visible in the MSE and the housing. Housing is more or less stable. MSE has come down a little bit. And we can't give a forward-looking, but the same trend continues.

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Karthik Chellappa, Buena Vista Fund Management, LLC - Investment Analyst [68]

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Got it. To an earlier question, as far as the micro portfolio in West Bengal is concerned, you said you're monitoring the political climate closely, and the on-time repayment is pretty much stable. Apart from the repayment ratio, what are the other lead indicators that you typically look for? Not just probably in West Bengal and any other states, for you to know when to go slow and when you can actually continue your normal growth, what would the other indicators be?

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Rajat Kumar Singh, Ujjivan Financial Services Limited - Head of Strategies and Planning [69]

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So in addition to repayment rate, we look at on-time repayment rate. So it should be on the time, we look at bureau rejection, how heated is the market because high -- more bureau rejection, you see heating up of market is more. So primarily these 2 things, and we look at how much new overdues are coming, i.e., incremental overdue in the market. This is that we kind of decide on either to lend aggressively or slow down.

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Operator [70]

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We have next question from the line of Gaurav Maheshwari from Unilazer Ventures.

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Gaurav Maheshwari, [71]

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My question pertains to the listing part of the SFB. Now why not follow the model which a couple of your peers are following in terms of, for the existing shareholders, giving them the shares directly in the SFB? And why going for a fresh IPO route?

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Samit Kumar Ghosh, Ujjivan Small Finance Bank Limited - MD, CEO & Director [72]

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So actually, sometimes it is a benefit to be second. So we've been actually watching very closely what happens with what Equitas has applied under the scheme. And we've actually worked on a similar scheme and kept it on board and to see what happened. But it's been not seen like SFB for a long time. We will see what happens because Equitas' deadline is, I believe, 1st week of September. And if it doesn't come through by then, we will go ahead with our IPO, which is programmed.

One thing we want to make sure is that we want to meet this licensing condition within the time line. So it's not that we have not looked at it, we have not prepared. Also, I mean we've done all the homework. We have a similar deal program ready. And if it comes through for Equitas within the time frame, which they have a deadline, we will -- if it comes through, we can also follow suit. If it doesn't, then we will definitely go through with the IPO route because for us, to meet the RBI deadline within time frame is very important.

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Gaurav Maheshwari, [73]

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I understand that, sir, because our only problem is that [the guide] that you are following is going to be extremely value destructive for most of the existing shareholders for the simple reason that you can see all the holdcos and the valuation, the concept which you trade at. So for existing shareholders, it's not an ideal situation to be in. But yes, given the updated guidelines, can you just throw some light on what would be the constraints of not receiving, because we have a lot of time at hand between now and January. So what could be the constraints for not getting approvals in place to do it the Equitas route?

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Samit Kumar Ghosh, Ujjivan Small Finance Bank Limited - MD, CEO & Director [74]

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Yes. We are waiting for -- I mean since Equitas had applied for it, we are waiting to see whether they get approval. And they have a time line of 1st week or, whatever, September, right? And they have applied long, long time back. So we are just waiting and seeing whether the regulators will give them approval or not. So if they don't give it within that time frame, then we'll just go ahead.

And on the other side, just let me tell you, we are trying to protect the downside for our existing investors as far as possible because if you have to go through with the regular IPO, it will only be for the minimum 10% or around 10% of the listing capital.

Secondly, we would -- we are trying to structure such that every category of investor is also able to participate in the bank IPO. So that will further offset any downside with this listing.

And finally, given all our discussions with the RBI, we are quite positive that if, by end of 5 years, we have excellent track record in terms of compliance, et cetera, then we are hopeful, since the RBI has kept the door open for reverse merger, we can take that forward. So that will, of course, definitely benefit our existing investors. That will definitely benefit them.

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Ittira Davis, Ujjivan Financial Services Limited - MD, CEO & Director [75]

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I think that will address your concern which you have with Samit 2 years later. But having said that, we would have in between met the condition that the RBI has put and not seek an extension.

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Gaurav Maheshwari, [76]

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No. But that is again uncertain, right, because the regulator has acted completely illogically by asking the group for an IPO. So I don't think we can expect the regulator to be again logical by allowing you to reverse merge this thing. So (inaudible) at least from my end, I don't expect...

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Samit Kumar Ghosh, Ujjivan Small Finance Bank Limited - MD, CEO & Director [77]

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No. No, I don't -- we don't say illogical, but their point of view was this is a fundamental licensing condition which we had agreed to and that we have to comply with that. So from that perspective, they are -- I mean it's not a question of logic, it's just a question of complying with licensing condition. Whereas the whole issue of reverse merger has been left open even in the guideline for the Small Finance Bank, so there, the Reserve Bank has the flexibility to allow us to reverse merge. And to that extent, they seem to be very positive about it. So we are very hopeful.

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Gaurav Maheshwari, [78]

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But that, you are expecting to happen in August guideline, that would again be decided further to the update?

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Samit Kumar Ghosh, Ujjivan Small Finance Bank Limited - MD, CEO & Director [79]

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As long as the guideline is already there, and the guideline for us already there. The fresh guideline can only strengthen that thing. I mean that's what we asked them that any kind of -- I mean they should give more clarity to that, but that is already in our current guidelines which are there for the small finance banks.

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Ittira Davis, Ujjivan Financial Services Limited - MD, CEO & Director [80]

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Can I request you to allow others to take questions, please?

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Operator [81]

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We have next question from the line of Amit Nanavati from Nomura Securities.

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Amit Nanavati, Nomura Securities Co. Ltd., Research Division - Associate [82]

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Sir, again, on this listing, you've mentioned that you have a similar scheme like Equitas, as a standby option if Equitas options get approved, you can apply for the same too. My understanding, and tell me if this is wrong, was that you have a provision on the issuing of shares from the bank level because of the reserves, right? So to that extent, what are the alternative options to transfer reserves or something which allows you to do that, if you can explain that?

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Upma Goel, Ujjivan Small Finance Bank Limited - CFO [83]

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So as far as scheme of element is concerned, we also have looked into the options where our bank's shares can be directly distributed to the shareholders of the holdco. At this point of time, we can say that our scheme is also similar to Equitas' scheme. And as and when that regulatory development -- we will come across the regulatory development and we will see that in case the approval is received, we will give the final details about the scheme.

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Amit Nanavati, Nomura Securities Co. Ltd., Research Division - Associate [84]

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So then if...

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Samit Kumar Ghosh, Ujjivan Small Finance Bank Limited - MD, CEO & Director [85]

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Our results will be...

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Upma Goel, Ujjivan Small Finance Bank Limited - CFO [86]

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So our results -- even I'm forced to say that our results are also there in the operating level as well as we also have other options available to distribute the shares to the shareholders of the holdco. Both the options are available. On the reserve side, we have a healthy reserve at the bank level.

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Samit Kumar Ghosh, Ujjivan Small Finance Bank Limited - MD, CEO & Director [87]

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By September, we will have it now.

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Amit Nanavati, Nomura Securities Co. Ltd., Research Division - Associate [88]

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So my question is -- or my confusion is that if you have a 6-months lead time versus Equitas and if you can have a similar scheme of arrangement, why not apply it, send it to the regulators as we all know that it takes ages for the regulator to approve the scheme in any which way. So if it's very much doable and Equitas is waiting for approval, why not us also apply for it?

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Samit Kumar Ghosh, Ujjivan Small Finance Bank Limited - MD, CEO & Director [89]

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No, it's not a question of time, it's a question of whether the regulator will permit this or not. And so we are waiting for Equitas to -- I mean if they approve for Equitas, we can file also. So there is no issue on that. We are ready for it. But the issue is not really how much time it will take. The issue is whether they will allow or not allow. And a lot of time has already gone by, so we are just waiting, and our deadline is actually September when their cutoff period is there.

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Amit Nanavati, Nomura Securities Co. Ltd., Research Division - Associate [90]

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Right. Right. And secondly, on the reverse merger, right. So if, say, for example, if you go to an IPO route, your shareholders at the bank level in less than 2 years' time will be completely different from the holdco level. And while the regulator may still have an open mind to allow a reverse merger, do you think there could be challenges at the shareholder level who (inaudible) or to give the upside to the holdco given that it's not their benefit?

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Ittira Davis, Ujjivan Financial Services Limited - MD, CEO & Director [91]

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Do you want to explain common shareholder?

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Samit Kumar Ghosh, Ujjivan Small Finance Bank Limited - MD, CEO & Director [92]

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Yes. I think there are some rules which have been laid down on this and there have been precedents about voting on this by SEBI. And I think we will apply those voting rights. And if there are common shareholders, they can vote. There is one requirement that 75% of all shareholders have to vote for this or 3x the number to those against. That is one condition. And the second condition is 51% of the common shareholders -- of the regular shareholders, excluding the promoter. So I think those are the 2 conditions which are there. And when the time comes, I'm sure that everybody will see a longer -- a future not just the point at that point in time and move forward. So I think we are ready to cross the bridge when we come to it.

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Operator [93]

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We have next question from the line of Pankaj Agarwal from AMBIT Capital.

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Pankaj Agarwal, AMBIT Capital Private Limited, Research Division - VP of Research [94]

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Sir, this IPO would be entirely fresh issue of shares or there would be some [opportunity] as well?

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Samit Kumar Ghosh, Ujjivan Small Finance Bank Limited - MD, CEO & Director [95]

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A fresh issue of shares.

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Pankaj Agarwal, AMBIT Capital Private Limited, Research Division - VP of Research [96]

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Okay, entirely. Okay. And second, sir, any color on your CASA deposits and in the type of customers, ticket sizes, geography? And any color will be helpful.

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Ittira Davis, Ujjivan Financial Services Limited - MD, CEO & Director [97]

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Okay. So we have -- just to kind of sketch, we have open market customers. We have the micro-banking customers. Within that, we have the senior citizens and the youth segment, and we have a part in [FIG]. So these are 3 or 4 different target markets that we address to whom we get deposits. And as a strategy, what we are following is we follow market channel strategy to be able to address each of these segments. And we've put into motion differentiated products and benefits and services, both on the CA side as well as the SA side, to address each of these segments.

And the segments, whether this we have identified cohorts which have specifically tailored products on the CA and the SA side to ensure that we are ahead of whatever else are differentiated in terms of our offerings. And as well as we are building a solution-based approach so that when we go to the customer, we are not just offering a product, but we are offering an entire solution. And we are seeing traction building on that. And we've seen the growth that we've seen in the last 2 quarters, which has progressively gone up, and we will continue in the same way.

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Pankaj Agarwal, AMBIT Capital Private Limited, Research Division - VP of Research [98]

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Okay. And what percentage of your SA deposits come from your like, as I said, customers? Is there some rough numbers?

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Samit Kumar Ghosh, Ujjivan Small Finance Bank Limited - MD, CEO & Director [99]

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Micro banking.

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Ittira Davis, Ujjivan Financial Services Limited - MD, CEO & Director [100]

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Right now, it could be almost about 50%.

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Pankaj Agarwal, AMBIT Capital Private Limited, Research Division - VP of Research [101]

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Okay, 50%. And that's from your micro banking customers, right?

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Ittira Davis, Ujjivan Financial Services Limited - MD, CEO & Director [102]

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Largely micro banking, yes.

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Operator [103]

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We have next question from the line of Gaurav Jani from Centrum Broking.

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Gaurav Jani, Centrum Broking Limited, Research Division - Research Analyst [104]

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Congratulations on a good set of numbers. Sorry, I have joined the call a bit late, so I probably missed (inaudible) on the listing front. So I -- regarding on the call, as I joined late, that we'll be actually having fresh shoot. So could you just simplify it? I mean earlier, we (inaudible) going to do the SFB listing versus a fresh listing now. So could you just actually elaborate on that?

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Ittira Davis, Ujjivan Financial Services Limited - MD, CEO & Director [105]

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The SFB listing is through a fresh offer. Right now, the -- all the shares of the SFB are held by the holding company. So there will be a fresh issue to new shareholders for the listing.

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Gaurav Jani, Centrum Broking Limited, Research Division - Research Analyst [106]

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Okay. Earlier, that was not the scenario?

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Ittira Davis, Ujjivan Financial Services Limited - MD, CEO & Director [107]

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That was -- I mean that earlier scenario, we were looking at all sorts of other options, which have been clarified. Now you may not have heard that. I went through all the options or several of the options we have looked at before coming to the IPO route.

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Rajat Kumar Singh, Ujjivan Financial Services Limited - Head of Strategies and Planning [108]

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Gaurav, we can take it off-line since we have already discussed this on the call.

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Gaurav Jani, Centrum Broking Limited, Research Division - Research Analyst [109]

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Just 2 quick questions then from my end. One is, if I understand by the discussions on the call, I mean if a retail investor held about 100 shares in the small finance -- in the holdco, [does he hold] these shares in the small finance bank, is it...

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Rajat Kumar Singh, Ujjivan Financial Services Limited - Head of Strategies and Planning [110]

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Your voice is cracking.

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Samit Kumar Ghosh, Ujjivan Small Finance Bank Limited - MD, CEO & Director [111]

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Could you repeat, please?

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Gaurav Jani, Centrum Broking Limited, Research Division - Research Analyst [112]

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Yes. I asked if, for example, a retail investor held about 100 shares in the holdco, would it make you eligible for 90 shares in the small finance bank or the fresh IPO? Could you...

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Samit Kumar Ghosh, Ujjivan Small Finance Bank Limited - MD, CEO & Director [113]

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It doesn't work like that. It's the 10% of the new issue, which is the issue which we are putting in place, will be earmarked for retail investors. And we can discuss -- we have explained this also in the earlier part of the session. So we can show -- we can explain this to you separately. There is -- SEBI allows us to earmark 10% of the issue size for retail investors and give that as a small discount of up to 10%.

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Gaurav Jani, Centrum Broking Limited, Research Division - Research Analyst [114]

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Okay, I'll think about that. Just the last question from my end. One being risk-weighted assets have actually been -- has grown lower to your AUM and the CET1 is maintained at 18.4% despite of having a 50% growth in the AUM. So can you explain that? I mean what led to -- so obviously, it's a positive, but what would have been happening on that? CET1 is actually maintained at 18.4% and the AUM has actually increased [with 26%] there.

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Upma Goel, Ujjivan Small Finance Bank Limited - CFO [115]

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Yes. So as far as our capital adequacy is concerned, as of June 2019, we are at 19% capital adequacy, but 18.4% is contributing to the CET1. One of the reasons that we are able to maintain such a healthy CET is on account of the reserves, INR 94 crores of profit and add it up to the CET1 capital.

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Gaurav Jani, Centrum Broking Limited, Research Division - Research Analyst [116]

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Okay. So that's the main reason?

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Upma Goel, Ujjivan Small Finance Bank Limited - CFO [117]

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Yes.

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Rajat Kumar Singh, Ujjivan Financial Services Limited - Head of Strategies and Planning [118]

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Yes. Because if you see our growth versus last number -- March number, it's not very high. It's around 7-odd percent. And the profit during this quarter was very high, which is why the CET1 [winded] at 18.4%.

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Gaurav Jani, Centrum Broking Limited, Research Division - Research Analyst [119]

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But we have actually done away with the state exposures slide this quarter. So if you could just throw some light quickly on the maximum exposure you have with the state and how much would that be.

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Rajat Kumar Singh, Ujjivan Financial Services Limited - Head of Strategies and Planning [120]

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So we have maintained the rule or internal policy that we have that we will not cross 20% in any state. We have removed that slide because of certain legal issues right now. We cannot disclose present data. As we mentioned on the call that we are in a IPO process, so there is certain limitation of what we can discuss and what we cannot discuss. What we can see is there's no great change in that percentage.

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Operator [121]

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We have next question from the line of Praful Kumar from Pinpoint Asset Management Company.

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Praful Kumar, Pinpoint Asset Management Limited - Portfolio Manager [122]

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Just wanted to conclude that discussion on the structure. I mean what you have done is in the best interest of the shareholders because capitalization of reserves in Equitas may be at the bank level and yours is in holdco level. So I think there is a stamp duty angle that comes in, and so that's the reason you were undecided for going to the IPO process. Is it a fair assumption that that's the reason behind it?

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Rajat Kumar Singh, Ujjivan Financial Services Limited - Head of Strategies and Planning [123]

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Praful, whatever decision we have taken, as Mr. Davis and Mr. Ghosh explained in their address, is largely to meet the RBI regulatory requirement to list the bank by the deadline of 31st January 2020. We have evaluated all other possible options. And as Mr. Davis mentioned, one of the reasons for not going through it was we believe that this is rejected by regulators on those options. Between today and before we file for -- or go ahead for any other option, if we see there any change on the regulatory front, we will reevaluate the option.

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Praful Kumar, Pinpoint Asset Management Limited - Portfolio Manager [124]

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No. But I just want to get the clarity that if stamp duty -- because in the initial remarks also, you mentioned that we have gone through all the taxation angles, stamp duty angle because you'll have to transfer the reserves. And that's why, clearly, it's in the best interest of shareholders that we have done this. Is that a fair assumption? So just wanted to get some clarity that if you can comment on that.

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Upma Goel, Ujjivan Small Finance Bank Limited - CFO [125]

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So as far as the scheme of arrangement is concerned, there are 2 elements. One is definitely what you rightly said, this is an impact on account of stamp duty. We are located in 2 states. One is Delhi and the second one is Karnataka. Both the states' stamp duty will get impacted, will be levied on us if we'll go ahead with the scheme of arrangement; and the overall income tax impact, which we'll have it on account of the scheme, which will be onto the shareholders and some part onto the bank and holding company as well.

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Operator [126]

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We have next question from the line of Aashish from InvesQ.

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Aashish Upganlawar, [127]

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Sir, actually, I did not miss any part of the call, but still, I'm unclear about the entire structuring. So just bear with me. So what I understood is that if the shareholders of the existing listed entity, they will face a 10% dilution in the small finance bank and there won't be any shares that the existing shareholders get in the small finance bank. Is that correct? And can you comment, please?

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Samit Kumar Ghosh, Ujjivan Small Finance Bank Limited - MD, CEO & Director [128]

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Yes. If none of the shareholders wish to apply for any shares in the bank, none of the shareholders of the holding company, there will be dilution to the extent that they are now only -- the holding company now holds only 90% of bank. However, the bank will grow the business with the extra capital that it reserved -- received. So we will get 90% of a larger pie. So you have to see it from that perspective. It's only -- it's not just looking at it what was going to happen by the reduction. There is going to be a business growth and there is going to be the growth of the bank. So that is what the existing shareholders will benefit.

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Aashish Upganlawar, [129]

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Yes. So actually, if the shareholders vote in favor of having shares in the small finance bank, it will be a mirror, except for the 10% dilution. Is that correct then?

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Rajat Kumar Singh, Ujjivan Financial Services Limited - Head of Strategies and Planning [130]

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We can take this question off-line.

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Aashish Upganlawar, [131]

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No. Actually, it's important because we are shareholders of the company. And still, we can't figure this out because the stock price (inaudible) and clarification is coming later on. That's quite a problem. So if there's some time, you can please help us.

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Rajat Kumar Singh, Ujjivan Financial Services Limited - Head of Strategies and Planning [132]

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Right now, what we are evaluating is, if we go through a primary listing route or the IPO route, we will give our reservation for the existing retail shareholder of holding company, as I said. They will have to apply for the shares and the shares that we allotted. Okay? So nothing like free shares being given to each retail or a merchandise or an institutional shareholder.

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Aashish Upganlawar, [133]

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Okay. Sure. I will take it off-line then.

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Rajat Kumar Singh, Ujjivan Financial Services Limited - Head of Strategies and Planning [134]

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We hope that a better shareholding will arise. If we go through other routes, which we discussed, we evaluated and we -- as we informed you that with this regulatory requirement, we believe it might not go through, and we are still evaluating those options. And that's what Mr. Davis and Mr. Ghosh said that we are open to reevaluate all the options should there be any changes in regulatory front.

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Operator [135]

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We have the next question from the line of Sonia Lalwani from Purnartha Investment Advisers.

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Sonia Lalwani, [136]

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I just have 3 important questions. Sir, could you just tell us the number of unique customers that we have during this quarter?

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Rajat Kumar Singh, Ujjivan Financial Services Limited - Head of Strategies and Planning [137]

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Sorry, come again?

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Samit Kumar Ghosh, Ujjivan Small Finance Bank Limited - MD, CEO & Director [138]

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Unique customers.

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Sonia Lalwani, [139]

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Unique customers.

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Upma Goel, Ujjivan Small Finance Bank Limited - CFO [140]

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It's 30%.

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Sonia Lalwani, [141]

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30%. All right. Sir, in the MSME segment, if we see -- could you just give us the brief about how you do the risk profiling, plus how many accounts are there in the MSME segment? And what would be the maximum exposure to an MSME?

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Samit Kumar Ghosh, Ujjivan Small Finance Bank Limited - MD, CEO & Director [142]

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So the MSME segment, the maximum exposure that we have is INR 2 crores. And the risk -- we have a risk assessment methodology that we use, which has been developed over time as we progressed and which is based on the bureau, which is based on a whole bunch of other variables that we look at and make an assessment. And that's essentially the risk assessment of the customer that we follow.

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Sonia Lalwani, [143]

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So the rule, you will high mark like we use for micro credit or what is the other type of score that we use for them, I mean, the external score?

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Samit Kumar Ghosh, Ujjivan Small Finance Bank Limited - MD, CEO & Director [144]

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So we only use (inaudible) at the bureau.

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Sonia Lalwani, [145]

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All right. And sir, the third is related to the PCR that is reduced from 70s to 69. So could this have been a little higher than this? I mean I was just wanting to understand like how we are covering the risk. And related to this is the question that, which segment has contributed more to the bad debt this quarter?

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Upma Goel, Ujjivan Small Finance Bank Limited - CFO [146]

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Okay. Answering your first question on the PCR, the PCR reduction is mainly on account of the write-off we've seen in the quarter, and there's no other reason for that reduction. As far as incremental delinquencies are concerned, like Mr. Ghosh mentioned in his opening speech, this is largely coming on account of the first listing in Odisha because of Cyclone Fani.

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Sonia Lalwani, [147]

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All right. So mostly, we have written off all the bad debt that was there? Or is anything less that has to be written off from that affected area?

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Upma Goel, Ujjivan Small Finance Bank Limited - CFO [148]

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Our earlier guidance on this front holds root. And for Q1, INR 15 crores is the write-off.

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Sonia Lalwani, [149]

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All right. And I have some data digging questions. We will take it off-line.

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Abhishek Murarka, IIFL Research - VP [150]

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Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to the management for closing comments. Sir, over to you.

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Samit Kumar Ghosh, Ujjivan Small Finance Bank Limited - MD, CEO & Director [151]

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Well, thank you, Abhishek, and thank you for the IIFL team to conduct this. It's been a very important session because, I guess, many of you had questions on the structuring and the listing. So that is important. If there are any other questions that you have, please contact us directly, and we will be able to address those. So thank you very much.

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Abhishek Murarka, IIFL Research - VP [152]

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Thank you very much, gentlemen. Yes, thank you, sir. Ladies and gentlemen, on behalf of IIFL Securities limited, that concludes this conference call. Thank you for joining with us, and you may now disconnect your lines.