Ujjivan Small Finance Bank stock rose over 30% in the past year, driven by record FY26 financial results and a shift toward secured lending. The bank now aims for 25% credit growth and is expanding its retail deposit base to support long-term stability.
Ujjivan Small Finance Bank has seen its stock price climb more than 30% over the last year, outperforming the Nifty Bank index. This growth follows the bank’s strong financial performance in FY26, capped by an all-time high Return on Assets (RoA) of 2.1% in the final quarter. Investors have reacted positively to these results, which were supported by improved margins and lower costs related to bad loans.
Growth Strategy and Secured Lending
The bank is currently adjusting its business model, moving toward a higher share of secured loans. This strategy focuses on MSME lending and mortgages, helping to diversify the portfolio away from its traditional microfinance base. Over the past four years, the bank has achieved a 22% compound annual growth rate in its total assets under management. Management is now targeting credit growth of over 25% for the coming year, with secured lending segments expected to grow by roughly 40%.
Liability Management and Deposit Base
To fund this expansion, Ujjivan SFB is prioritizing the growth of its retail deposit franchise. The bank’s Current Account and Savings Account (CASA) ratio, which measures the proportion of deposits in low-cost accounts, improved to 27% in FY26, up from 24% in the previous year. The target is to reach 29-30% by FY27. By focusing on these retail deposits, the bank aims to maintain a comfortable credit-to-deposit ratio in the 88-89% range, which helps manage funding costs effectively.
Future Outlook and Operational Costs
Looking ahead, the bank plans to invest significantly in technology and physical presence, with 140 new branches scheduled to open in FY27. While these investments will increase operating expenses, the bank expects its cost-to-income ratio to remain stable between 25% and 26% due to better operating efficiency. Despite the shift toward lower-yielding secured loans, management expects net interest margins to stay near 8.5% by managing funding costs, and is projecting an RoA of 1.6% for FY27.
Potential Risks and Monitoring
Investors are tracking the bank's transition as it balances rapid growth with the risks of changing its lending mix. While asset quality has improved, with projected Gross Non-Performing Assets (GNPA) falling to 2.17% in FY27, the bank’s ability to manage credit costs in the MFI segment remains a factor. Additionally, the bank's valuation is currently tied to its estimated FY28 book value. Future developments, such as the potential application for a universal banking license and the success of new product lines like gold loans and vehicle finance, will be key areas for investors to watch in the coming quarters.