AU Small Finance Bank reported a 6% year-over-year increase in profit after tax for H1. Deposits grew by 21% year-over-year, nearly 2x the system growth rate. The loan portfolio, excluding unsecured businesses, increased by 22% year-over-year. NIM expanded by 5 bps quarter-on-quarter to 5.5%. The bank received in-principle approval to become a universal bank.
Financial Performance
AU Small Finance Bank (AU SFB) reported resilient performance, with H1 profit after tax growth of 6% year-over-year. The bank’s deposit book grew by 21% year-on-year, nearly twice the system growth rate. The loan portfolio, excluding unsecured businesses, grew by 22% year-on-year.
Key Financial Metrics
Net Interest Margin (NIM) increased by 5 bps quarter-on-quarter to 5.5%, driven by a decline in cost of funds. Credit cost has started to decline and is expected to normalize in the second half. The bank’s deposit base crossed INR1,32,000 crores, growing by 21% year-on-year and 3.8% quarter-on-quarter. CASA deposits grew by 9.7% year-on-year, with the CASA ratio remaining stable at 29.4%. Cost of funds reduced by 25 bps during the quarter to 6.83% from 7.08% in Q1.
Business Segments
The Retail Secured Assets segment grew by 20% year-on-year and 5% quarter-on-quarter. The wheels book grew by 26% year-on-year. The mortgage portfolio grew by 14% year-on-year. The Commercial Banking segment grew 22% year-on-year and 4% quarter-on-quarter.
Unsecured Segments
Unsecured segments degrew by 23% year-on-year and 2% quarter-on-quarter. The MFI book has started to stabilize with quarter-on-quarter degrowth moderating to 1%. The credit card book saw a degrowth of 31% year-on-year and 3% quarter-on-quarter. Incremental sourcing in credit cards is currently at a controlled pace.
Strategic Developments
AU SFB received an in-principle approval from the Reserve Bank of India (RBI) to become a universal bank with an 18-month transition time. The bank expects to see tailwinds in the second half from the onset of the festive season, boost from GST cuts, and expected economic recovery. Expansion of distribution in Andhra, Karnataka, Tamil Nadu, Telangana, UP, and West Bengal will start contributing to growth in a meaningful manner over the next 2 to 3 years.
Asset Quality
Ex bucket collection efficiency improved to 98.95% this quarter. The SMA book reduced from 4.3% in Q1 to 2.9% in Q2.
Future Outlook
The bank continues to target a full-year loan growth in the guided range of 2x to 2.5x of nominal GDP. The bank expects credit costs to normalize in the second half and expects full-year credit cost to be within its guidance of 1% of average total assets. The bank anticipates NIM should continue to expand over the next couple of quarters as the deposit book continues to reprice.
Source: BSE
