AU Small Finance Bank (AUSFB) has announced its provisional performance figures for the quarter ended September 30, showcasing strong growth across key financial metrics.

Deposit and Advance Growth

The bank reported a significant year-on-year increase in total deposits, which rose by 20.8% to reach ₹1,32,510.00 crores. This growth demonstrates the bank's ability to attract and retain customer deposits in a competitive market environment.

Gross advances also showed impressive growth, expanding by 22.4% year-on-year to ₹1,17,520.00 crores. This increase in lending activity suggests a healthy demand for credit and the bank's continued focus on expanding its loan portfolio.

CASA Performance

AUSFB's Current Account Savings Account (CASA) deposits grew by 9.7% year-on-year, reaching ₹38,960.00 crores. However, the CASA ratio stood at 29.4%, down from 32.4% in the same period last year. This slight decline in the CASA ratio might indicate a shift in the deposit mix, possibly due to customers opting for higher-yielding term deposits in the current interest rate environment.

Quarterly Performance

On a quarter-on-quarter basis, the bank demonstrated steady growth:

• Total deposits increased by 3.8%
• Gross advances rose by 5.3%
• CASA deposits grew by 4.6%

Loan Portfolio Expansion

The bank's gross loan portfolio, which includes securitized and assigned portfolios, expanded by 17.0% year-on-year to ₹1,22,870.00 crores. This growth in the overall loan book reflects the bank's continued focus on credit expansion while potentially managing risk through securitization.

Financial Highlights

Cautionary Note

The bank has emphasized that these figures are provisional and subject to review by the Audit Committee, Board of Directors, and Statutory Auditors. The official announcement of the financial results for the quarter ended September 30 is pending.

AU Small Finance Bank's performance in Q2 reflects its continued growth trajectory and its ability to expand its deposit base and loan portfolio. The bank's strong year-on-year growth in deposits and advances, coupled with the expansion of its loan portfolio, positions it well in the competitive small finance banking sector. However, the slight decline in the CASA ratio may be an area for the bank to focus on in the coming quarters.

Small finance banks in India are grappling with mounting pressure in their microfinance operations, with ESAF Small Finance Bank (ISIN: INE949L01017) among those facing significant challenges. Recent data reveals a concerning trend in the microfinance sector, particularly affecting ESAF and its peers.

Microfinance Portfolio at Risk

According to data from Sa-Dhan, approximately 20% of the microloan portfolios of three small finance banks - ESAF, Suryoday, and Utkarsh - are currently at risk. As of June-end, the portfolios at risk for more than 30 days stood at:

This high-risk exposure is largely attributed to the banks maintaining a 45-55% share of unsecured microloans in their portfolios.

ESAF's Financial Struggles

ESAF Small Finance Bank has been particularly hit hard by these challenges. In the June quarter, the bank:

• Sold ₹362.00 crore worth of loans to asset reconstruction companies
• Wrote off ₹371.00 crore

These actions have significantly impacted the bank's financial performance, resulting in reported losses for the period.

Asset Quality Deterioration

The asset quality of these small finance banks has seen a marked decline:

• ESAF's gross Non-Performing Asset (NPA) ratio stood at 7.48%
• Utkarsh's gross NPA ratio increased to 11.40% from 9.40% in the previous quarter
• Suryoday reported a gross NPA of 8.50%

Rating Downgrades

The financial stress has not gone unnoticed by rating agencies:

• CareEdge lowered ESAF's Tier 2 bonds to 'A-/negative'
• Icra downgraded Utkarsh's subordinated debt by two notches to 'A/negative'

Looking Ahead

The continued asset quality deterioration and high credit costs are expected to impact profitability for these banks in the September quarter and potentially for the full fiscal year. This situation underscores the challenges faced by small finance banks in managing their microfinance portfolios amidst economic uncertainties.

ESAF's Financial Performance

Despite the current challenges, it's worth noting ESAF's financial trajectory over the past few years:

While the bank has shown strong growth in revenue and profitability over the past year, the current microfinance stress poses significant challenges for its future performance. Investors and stakeholders will be closely watching how ESAF and other small finance banks navigate these turbulent times in the microfinance sector.