Ujjivan Small Finance Bank, a prominent player in India’s microfinance sector, is undertaking a significant restructuring of its balance sheet by selling off bad loans worth Rs 270 crore to asset reconstruction companies (ARCs). This move is part of the bank’s strategy to clean up its financials and improve its overall asset quality. The non-performing assets (NPAs) comprise loans primarily from the bank’s microfinance portfolio, which has been under significant stress in recent months.

Out of the total Rs 270 crore in bad loans, Rs 208 crore has been classified as non-performing assets, while the remaining Rs 62 crore was written off. The bank has set aside an overall provision of 85.61% for these loans, a measure that aims to cover the potential losses from these stressed assets. Despite the provisions, Ujjivan’s asset quality has deteriorated, primarily due to challenges faced in the microfinance sector, which accounts for approximately 65% of the bank’s total loan portfolio of Rs 30,344 crore.

The bank’s gross NPA ratio has risen to 2.52%, compared to 2.35% a year ago, and its net NPA ratio stands at 0.56%, a significant increase from 0.09% in the previous year. The majority of the recent slippages, about 80%, came from the microfinance sector. Ujjivan’s move to sell off these bad loans is aimed at reducing its NPA burden and stabilizing its financial performance as it focuses on improving the health of its loan portfolio.

This sale also reflects broader challenges in India’s microfinance sector, which has seen an increase in defaults due to economic pressures on low-income households. Ujjivan, however, remains optimistic about its recovery strategy and its ability to manage asset quality moving forward.