AU Small Finance Bank FY24 Annual Earnings Summary

Despite cutting deposit rates, sequential deposit growth was flat; if deposit accretion does not pick up, asset growth may be constrained.

MFI business has inherent cyclicality with credit costs spiking every 3-5 years; management plans conservative provisioning but risk remains.

Credit card credit cost is currently ~6-6.5% annualized, higher than industry steady-state, and may not normalize until the book reaches larger scale.

75% of credit cards issued to new-to-bank customers with average limit of INR 1.74 lakh, which could result in higher delinquencies as the book seasons.

As the credit card book scales, credit costs may normalize to industry levels of 5-6%, impacting overall credit cost.

NIM contracted 38 bps QoQ and management guided for an additional 10 bps spillover; competitive pressures could further compress margins.

Merging with Fincare adds 15,000 employees and 1,300 touchpoints; cultural and operational integration could distract management.

NIM declined to 5.5% due to structural mix shift and rising deposit costs; further pressure expected if competition intensifies.

CASA ratio declined 4pp since March; tight liquidity and high competition may keep cost of funds elevated.

Cost of funds increased 78 bps in 9M FY24 and 20 bps QoQ; NIM contracted 6 bps QoQ to 5.5%. Further hikes could compress margins.

Fincare merger adds MFI book with ~3% expected credit cost; integration and asset quality management remain key risks.

Management expects cost of funds to increase by 40-45 bps in FY25, which could compress NIMs further if not offset by yield improvements.