AU Small Finance Bank conducted conference call on 25 April 2023 to discuss its financial results for the quarter ended March 2023. Sanjay Agarwal, MD&CEO of the bank addressed the call:

Highlights:

The bank recently celebrated 28 years of its presence and 6 years of banking operations.

The bank has fulfilled all its commitment shared during road shows for capital raising last year. The business has grown at 30%. The bank has continued to deliver sustainable RoE and RoAs. The bank is serving more than 38 lakh customers. The RBI approval for reappointment of MD for 3 years indicates at strong governance.

Bank has raised the share of Casa and retail deposits to 69% end March 2023.

The net interest margin of the bank has been impacted due to rising deposit rates which are yet to reach peak level.

Also the significant loan book of the bank is fixed rate which impacts margin in the rising interest rates scenario. However, the share of fixed rate loan book has declined to 66% of loan book end March 2023 from 73% end March 2022. The bank expects to reduce share of fixed rate loans to 50% in next three years.

The margins are likely to remain under pressure and may moderate by 30-40 bps in FY2024.

The share of commercial banking loans and affordable housing loan book is rising which has lower yields but the credit cost and opex is low. So it has a similar RoA is compared with the other retail businesses.

With the continuing investment the cost to income ratio remained elevated. The bank expects these investments will start generating higher revenues by the year end.

Credit cards business is expected to break even in next 1 year.

The bank focus is on building a strong brand and that will enable in strengthening trust among customers. The focus will be also on strengthening deposit franchise, invest in innovation, strong HR practices etc.

Strong collection efforts have helped to maintain gross NPA below Rs 1000 crore and net NPAs low at 0.42% end March 2023.

Bank issued more than one lakh credit card in FY23 taking the cards base 5 lakh. The monthly cards issuance has increased to more than 15 thousands.

The favorable tax order has resulted in a tax reversal.

The RBI has granted the bank an AD - 1 license which is expected to help the bank to acquire new customers.

The bank added 108 branches in FY2023.

The bank expects the small business loan book to grow by 20-21%. The overall loan growth is expected to around 28%.

Within the vehicle finance book, the personal car share was 40%, taxi 12%, tractor 10% and two-wheeler 2%.

The bank expects to maintain RoA in the range of 1.8-2% going ahead.

The ratio of fee income to average assets is expected to improve over the next few years from existing 1.3-1.4%.