With insiders at the helm, Ujjivan is readying for a reset

 Ujjivan Financial Services’ investors have given a thumbs-up to the appointment of Chief Executive Officer (CEO) Sanjeev Barnwal, pushing shares up by 10 percent during intra-day trade on September 9.

The enthusiasm of shareholders isn’t surprising. Barnwal is an insider and has been the company secretary. He is a consensus candidate and can probably fit into the role well.

At a time when things aren’t smooth between the founders and the small finance bank (SFB), an insider is a safe bet to be in charge. Just recently, the group had appointed Carol Furtado as officer on special duty to head the Ujjivan SFB’s operations.

“Hopefully, this issue (differences between the holding company and the bank management) should be resolved, going forward,” said Jyoti Roy, an analyst at Angel Broking.

With the top management-level moves, Ujjivan may be readying for a reset after a tumultuous phase.

“They know the institution well for a long time. That could be an advantage. Carol, especially, has a lot of experience within Ujjivan. She has good acceptability within the team. Probably, this will work for them,” said P Satish, executive director at Sa-Dhan, an industry body of microlenders.

The cold war

The tussle between the holding company and the bank isn’t a secret affair anymore. The series of exits from the bank, including that of the chief executive officer, was attributed to the cold war between the founders and the bank management.

The friction at the top has been there for a while. Nitin Chugh, who took over as CEO in December 2019, resigned on August 19, 2021. That wasn’t the first top-level exit, though.

Not long ago, Harish Devarajan, one of the directors, had quit. In February this year, B Mahapatra had quit as chairman of Ujjivan SFB. Other major exits this year so far include independent directors and non-executive directors Vandana Viswanathan, Jayanta Kumar Basu, Biswamohan Mahapatra, Ittira Davis, and Mona Kachhwaha.

Although all top executives left abruptly, citing personal reasons, Ujjivan insiders and industry experts see the deepening divide between the founders and the bank management – mostly in connection with the worsening asset quality and provisioning – as the real reasons.

From Company Secretary to CEO

Barnwal is a qualified Company Secretary from the Institute of Company Secretaries of India and holds a Bachelor's Degree in Law and a Diploma in Business Management, the company said in a statement. Prior to joining Ujjivan, Barnwal worked with SMC Capitals Ltd as Associate Vice-President and Company Secretary.

“For any organisation, people who have been with the organisation and know the team will always be useful,” Satish of Sa-Dhan said. Getting Barnwal and Furtado in charge may be the group’s bid to bring back normalcy and discipline, and also to mend the relations between the holding company and the bank.

Ghosh’s disappointment

In April this year, Ujivan Financial Services shareholders had rejected the special resolution to appoint founder Samit Ghosh as MD and CEO. Also, shareholders didn't approve the special resolution to reappoint Abhijit Sen as an independent director.

Both resolutions received 70 percent votes in favour. However, these being special resolutions in nature, require a minimum 75 percent valid votes polled in favour of the resolution or a minimum of three times of the votes polled against the resolution.

Later, in an Interview Ghosh had expressed his disappointment. “For one day, I was quite upset. I didn’t want to take this job. The company said since the position of the MD & CEO has fallen vacant, why don’t you take up the additional charge. We will get someone else soon,” Ghosh said.

In the same interview, Ghosh also left some hints about the widening differences between the holding company and the management of the new bank. “After we became a bank, we (Ujjivan Financial Services, which is the holding company of Ujjivan Small Finance Bank) took a back seat,” said Ghosh.

Challenges ahead

The group has to set the house in order. It has bigger challenges ahead, especially on the asset quality front. COVID remains the main villain in the story. The SFB's overall recognised stress pool stands at 15.6 percent of the loan book (including GNPA of 9.8 percent/restructured loans of 5.8 percent) and the portfolio-at-risk has swelled to 30 percent, as of June 2021.

To be sure, asset quality woes aren’t for Ujjivan alone. At the end of June 2021, AU SFB has an NPA of 4.3 percent against 5 percent of RBL Bank and 4.61 percent of IDFC First Bank. “SFBs are facing major challenges and will find it tough to compete with bigger banks. COVID is an added challenge for the sensitive microfinance business,” said a Mumbai-based banking analyst on condition of anonymity.