On Monday, Utkarsh Small Finance Bank (USFB) shares have increased by 4% in early trade and has announced the plans to sell Rs 355 crore worth of non-performing microfinance loans to asset reconstruction companies (ARCs). The stock reached an intraday high of ₹35.85 on the BSE before settling at ₹34.78 by mid-morning, up 0.64%. This positive movement has been taken to step towards enhancing the bank’s financial position while addressing challenges in the microfinance sectors.
Strategic move to recover bad loans
In its filing last Friday, the bank disclosed plans to auction the distressed loans with a reserve price of ₹52 crore, equating to a recovery rate of 14.64%. These loans have already been written off after being fully provided and thus, categorized as unsecured. The move reflects USFB’s proactive approach to cleaning up its balance sheet while reinforcing its focus on financial stability.
Selling non-performing microfinance loans allows banks to transfer risk while recovering funds. The aim behind such loans is to promote financial inclusion in unreserved areas but they often face challenges in repayment during periods of economic stress.
Industry-wide impact
This announcement follows a similar move by IndusInd Bank, which recently put ₹1,573 crore worth of non-performing microfinance loans on the block with a reserve price of ₹85 crore, translating to a recovery rate of 5.04%. The microfinance sector has witnessed growing stress in recent months, prompting institutions to re-evaluate their portfolios and focus on strategic recovery.
USFB: A champion of financial inclusion
Established as Utkarsh Micro Finance in 2009 and transitioned into a small finance bank in 2017, USFB has been an important force in advancing financial inclusion in rural and semi-urban areas. The bank provides various financial products, including savings accounts, fixed deposits, microloans, and agricultural financing, serving particularly to low-income individuals and micro-entrepreneurs, with a strong emphasis on empowering women.
Beyond banking, USFB focuses on community development and financial literacy through corporate social responsibility initiatives. Its commitment to bridging the financial gap in underserved regions has garnered recognition as a significant contributor to economic empowerment in India.
Positive outlook amid challenges
While USFB shares have faced a 35.8% decline over the past year compared to a 9% rise in the Sensex, this recent move highlights the bank’s resilience and strategy to strengthen its operations. The sale of distressed assets could enhance its liquidity and enable further investments in its core mission of financial inclusion.
With plans to address challenges and focus on growth, USFB’s efforts align with India’s broader economic goals of fostering inclusion, empowering small businesses, and advancing rural development.
