Utkarsh Bank's Prudent Practices: Impacts on Loan Growth and Asset Quality

Utkarsh Small Finance Bank is implementing prudent lending practices by limiting borrower relationships to four. This aims to control loan growth and asset quality. Despite temporary challenges, the bank anticipates a significant positive change in the coming months. Their strategic adjustments have led to reduced reliance on bulk deposits.

Utkarsh Small Finance Bank is adopting prudent lending practices by capping borrower relationships at four, a move expected to impact loan growth and asset quality in the short term. Govind Singh, the bank's managing director, highlighted this initiative at a recent company event.

From August 1, the microfinance sector set a limit of four lenders per borrower, and lending proposals exceeding this cap will face rejection. Singh noted that while current disbursements have decreased, and 15% of borrowers already hold loans from four or more lenders, the approach will ultimately benefit the industry despite temporary stress.

The bank, facing operational challenges like cash movement, is also experiencing yield growth in loans against property and small business loans. They aim to maintain a net interest margin above 9% while reducing bulk term deposit reliance, now over 31%. A reverse merger transaction is expected to conclude in 12-13 months, reducing promoter holding.

(With inputs from agencies.)