Ujjivan Small Finance Bank (USFB) on Tuesday clarified that loans which did not qualify for priority sector lending (PSL) have been removed from PSL classification. It has also sharply cut the concentration of top 20 deposits, and put in place quality control processes to prevent any mismatch in the rate of interest mentioned in certain sanction letters and that in loan agreements, among others.

The clarification comes in the backdrop of the Reserve Bank of India's observations pursuant to its annual financial inspection of UFSB, as disclosed in the Draft Red Herring Prospectus (DRHP) filed by the bank with the Securities and Exchange Board of Indian, in connection with its proposed initial public offer (IPO).

In relation to RBI's observation on a lack of systems to tag PSL advances, mis-categorising of PSL advances and earning of processing fees on PSL loans, USFB said earlier it classified PSL loans manually, based on reports. Most of USFB’s loan accounts are currently tagged online, the bank said in a regulatory filing.

"PSL loans which did not qualify, have been removed from PSL classification. Processing fees collected on these accounts has been refunded to customers.

"A small proportion of USFB’s agricultural loans had been mis-categorised as PSL advances, based on erroneous land-holding data. These cases have been re-classified as non-PSL advances," the bank said.

On the issue of a lack of rating methodology, USFB observed that it had a scorecard-based framework in place for rating its borrowers, and is working on an automated rating methodology.

On the high proportion of bulk deposits and concentration of deposits in its top 20 depositors, USFB said the concentration of top 20 deposits has substantially decreased from 73.59 per cent (as on March 31, 2018) to 30.14 per cent as on September 30, 2019.

On liability products being offered in certain asset centres without RBI’s approval, the bank clarified that the issue has since been resolved.

Regarding the rate of interest mentioned in certain sanction letters being different from those mentioned in loan agreements, the bank said necessary quality control processes had been put in place to prevent any recurrence of such instances.

On the issue of a discriminatory interest rate on deposits on a particular date for the same tenor and amount, the bank said: "While a few cases had been identified in this regard, USFB has implemented additional controls to ensure no recurrence."

On the lack of a fraud management system, a weak customer grievances redressal mechanism and deficiencies in AML (anti-money laundering) & KYC (know your customer) protocols, USFB said it currently has a manual fraud management process, which is in the process of being automated. The bank added that it had a multiple product-based customer grievance redressal mechanism and has put in place standard operating procedures, to achieve a centralised monitoring mechanism.

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