Ujjivan Small Finance Bank Limited — Credit Ratings, 27-03-2025: Credit Rating

Ujjivan Small Finance Bank (USFB) has reaffirmed its credit rating of CARE AA-; Stable across various facilities, including ₹500 crore in long-term bank facilities and ₹10,000 crore in fixed deposits. The stable outlook reflects the bank's solid capital adequacy ratio (CAR) of 23.90% and Tier-I CAR at 22.10% as of December 31, 2024, supported by regular capital infusions and internal accruals.

However, the bank faces challenges from rising non-performing assets (NPAs), with gross NPAs increasing to 2.68% and slippage rates rising to 3.6%. This is partly attributed to ongoing stress in the microfinance sector. Profitability has declined, with a year-over-year drop in net profit of 32%, primarily due to elevated credit costs and interest reversals linked to asset quality issues in microfinance.

Investor sentiment may be cautious due to these profitability pressures and asset quality concerns. Future growth is expected to be driven by a diversification strategy, transitioning to more secured loans, although margins may remain under pressure. The bank's focus on increasing its CASA deposits is crucial for enhancing its funding stability. Overall, the reaffirmation reflects a balance of solid capital levels and looming asset quality risks that investors should monitor closely.