AU Small Finance Bank has made significant organizational changes and reported its financial results for the first quarter, showcasing both challenges and growth in various segments.

New Senior Management Personnel

The bank's Board of Directors has approved the categorization of four senior executives as Senior Management Personnel (SMPs), effective July 26:

• Dhavan Shah, Head of Commercial Banking
• Kapil Gupta, Head - Treasury & Financial Markets
• Ankur Tripathi, Chief Information Officer
• Manoj Tibrewal, Head of Human Resources, Admin & Infra

Shah and Gupta are recent additions to the bank, joining in April and March respectively, bringing extensive experience from major banks. Tripathi has been with AU Small Finance Bank since March 2014, while Tibrewal has served since February 2009.

Q1 Financial Performance

AU Small Finance Bank reported a mixed financial performance for Q1:

Segment Performance

• Wheels Financing: Grew by 26% YoY, with a portfolio of around ₹38,000 crore.
• Mortgages: Total portfolio grew by 14% YoY to approximately ₹39,000 crore.
• Commercial Banking: Grew 30% YoY, forming 21% of the total loan portfolio.
• Unsecured Lending: De-grew by 23% YoY, including challenges in the microfinance and credit card segments.

Credit Cost and Asset Quality

The bank reported elevated credit costs, particularly in unsecured lending:

• Overall credit cost expectation increased to around 1% of average total assets for the fiscal year.
• Microfinance and credit card segments faced challenges, with credit costs expected to peak in Q2.
• The southern mortgage portfolio experienced some stress, attributed to transitional challenges.

Future Outlook

• The bank maintains its ROA guidance of 1.8% for the next fiscal year.
• Management expects NIM to bottom out in Q2 and gradually improve from Q3 onwards.
• Growth targets remain at 2 to 2.5 times the nominal GDP growth rate.
• The bank is focusing on strengthening its collection infrastructure and risk management practices.

AU Small Finance Bank continues to navigate a challenging economic environment while maintaining growth in its core segments. The management remains optimistic about improvements in the second half of the fiscal year, supported by anticipated economic recovery and internal efficiency measures.

AU Small Finance Bank has reported a 16% year-on-year growth in profit after tax (PAT) for the first quarter, reaching INR 581.00 crores. The bank demonstrated robust growth in key areas despite facing challenges in certain segments.

Strong Deposit and Loan Growth

The bank achieved impressive deposit growth of 31% year-on-year, with total deposits reaching INR 1,27,000.00 crores. This growth rate was nearly three times the system growth rate. The loan book expanded by 18% year-on-year to INR 1,17,000.00 crores, almost double the system growth rate. This growth was achieved despite a 23% decline in the bank's unsecured book.

Margin Pressure and Credit Costs

Net interest margin (NIM) compressed by 38 basis points to 5.40% from 5.80% in the previous quarter. This reduction was driven by lower asset yields and reduced investment yields. Despite the margin pressure, the bank maintained a Return on Assets (ROA) of 1.50%.

Credit costs increased during the quarter, primarily due to stress in the microfinance business and challenges in the southern mortgage portfolio. The bank revised its full-year credit cost expectation upward by 10-15 basis points to around 1% of average total assets.

Segment Performance

The retail-secured assets segment, comprising 67% of the loan portfolio, grew by 20% year-on-year. The wheels business led this growth with a 26% increase. The bank's commercial banking segment also showed strong performance, growing by 30% year-on-year.

However, the unsecured book, including microfinance and credit cards, faced challenges. The microfinance portfolio saw a decline in collection efficiency to 98.30% from 98.70% in the previous quarter.

Management Outlook

Management expects Q2 to be the bottom for margins and anticipates gradual improvement from Q3 onwards. The bank is taking measures to address challenges in the unsecured segments, including leadership changes in the credit card business and implementing new risk filters in microfinance lending.

Future Strategy

AU Small Finance Bank remains confident in its strategy and customer-centric model. The bank is focusing on expanding its distribution network, particularly in the wheels and mortgage segments. It aims to increase mortgage business growth from the current 15% to 20% in the coming years.

The bank maintains its guidance of achieving a 1.80% ROA for FY27, factoring in expected improvements in the microfinance and credit card segments.

Conclusion

While AU Small Finance Bank faces some near-term challenges, particularly in unsecured lending, its core secured lending business remains strong. The bank's management is optimistic about improvement in the second half of the fiscal year, supported by anticipated economic recovery and the festive season.