Ujjivan Bank to replace loans with certificate deposits

Mumbai: Ujjivan Small Finance Bank has said that it will bring down its cost of funds by up to 150 basis points during the current financial year by replacing 75% of its bank loans with borrowings using money market instruments including certificate of deposits.
The decision follows the grant of a scheduled bank status to Ujjivan. Ujjivan, which operated a microfinance business received a licence to operate as a small finance bank earlier this year.An SFB has most of the features of a commercial bank including recognition as a scheduled bank. This means that the institution can raise money from the inter-bank money market.
Speaking to ToI Hiren Shah, chief finance officer, Ujjivan SFB said most of the MFIs are carrying baggage of bank term loans with interest at 10-11%. The new funding will come at rats which are much lower and closer to 7%. Even after adding the cost of maintaining statutory liquidity ratio (SLR) a mandatory requirement for banks, the costs of funds will go down by 150-200 basis points.
“We will be issuing 90-day CDs to mutual funds and insurance companies and FDs to corporates, trusts, cooperative banks,” said Shah. He added that during the initial months of the current fiscal the SFB had seen its spreads narrow as costs had gone up due to imposition of reserve requirements without the advantage of money market borrowing that was available to scheduled banks.
According to Shah there would not be any immediate reduction in the benchmark lending rates as the overall costs for Ujjivan had gone up post conversion to a bank from February 2017. The bank would however bring down cost of home loans and loans for small and medium enterprises.