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AU Small Finance Bank Limited — Q1 FY25
AU Small Finance Bank reported a steady Q1 FY25, with the board approving a universal bank application.
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AU Small Finance Bank reported a steady Q1 FY25, with the board approving a universal bank application. The bank maintained a cautious deposit strategy, keeping the book flat at INR 97,290 crore to optimize costs, resulting in a 7 bps reduction in cost of funds to 7.03%. Disbursements reached 20% of the INR 60,000+ crore annual target, with yields improving to 15.8%, up 250 bps QoQ. Asset quality remained stable, with annualized credit cost at 1.28%, within the guided 1.10-1.15% range for the year. Management reiterated FY25 ROA guidance of 1.6%, though margin pressure from deposit repricing is expected. Key risks include rising competition in deposits and potential stress in microfinance, where a 3% credit cost provision is being built. The universal bank license could enhance brand trust and deposit franchise, but near-term cost of funds may rise by 35-40 bps.
AU स्मॉल फाइनेंस बैंक ने पहली तिमाही (अप्रैल-जून 2024) में अच्छा प्रदर्शन किया। बोर्ड ने यूनिवर्सल बैंक बनने के लिए आवेदन को मंजूरी दे दी। बैंक ने सावधानी से जमा रणनीति अपनाई और जमा राशि 97,290 करोड़ रुपये पर स्थिर रखी, जिससे लागत घटी। इससे फंड की लागत 7.03% हो गई, जो पिछली तिमाही से 0.07% कम है। कर्ज बांटने का लक्ष्य 60,000 करोड़ रुपये सालाना है, जिसमें से 20% पूरा हो चुका है। कर्ज पर ब्याज दर बढ़कर 15.8% हो गई, जो पिछली तिमाही से 2.5% अधिक है। कर्ज की गुणवत्ता स्थिर रही और सालाना क्रेडिट लागत 1.28% रही, जो अनुमानित सीमा (1.10-1.15%) के करीब है। बैंक ने साल 2024-25 के लिए 1.6% रिटर्न ऑन एसेट्स (ROA) का लक्ष्य दोहराया, लेकिन जमा पर ब्याज बढ़ने से मार्जिन पर दबाव रहेगा। मुख्य जोखिमों में जमा के लिए बढ़ती प्रतिस्पर्धा और माइक्रोफाइनेंस में तनाव शामिल है, जिसके लिए 3% का प्रावधान किया जा रहा है। यूनिवर्सल बैंक लाइसेंस से भरोसा बढ़ेग
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Deposit cost pressure from competition
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Disbursement Yield
15.8%
+250bps QoQ
Yield on new disbursements improved significantly due to focus on high-yield assets and reduced competition.
CASA Ratio
32.9%
+1.8% vs March 2024 pro forma
CASA deposits grew to INR 32,034 crore, aided by strategic deposit mix optimization.
Credit Card Issuance
75,000
Calibrated down
Card issuance was deliberately reduced to improve underwriting quality amid industry stress.
Microfinance Provision Coverage
93%
N/A
Provision coverage on microfinance GNPA is high, with additional 3% annual credit cost being built.
What Changed vs Last Quarter
NEW
Deposit growth target of 25% for FY25
Management aims to grow deposits by 25% this fiscal, with INR 25,000 crore incremental deposits needed over the next nine months.
NEW
Full-year ROA guidance of 1.6%
Management reiterated ROA guidance of 1.6% for FY25, with potential upside if deposit costs remain favorable.
NEW
Cost-to-income ratio around 61-62% for FY25
Management expects cost-to-income ratio to be around 61-62% for the full year, with Q1 being seasonally lower.
UPDATED
Credit cost guidance of 1.10-1.15% on advances
Annualized credit cost expected to be in the guided range of 1.10-1.15%, including 3% provision on microfinance book.
DROPPED
Balance sheet growth of ~25% annually over next 3 years
Management expects to grow the balance sheet by around 25% per annum over the next three years, consistent with historical growth rates.
DROPPED
Defend 1.6% ROA in FY25
The bank aims to defend a return on assets of 1.6% in FY25, despite cost of funds expected to rise by 40-45 bps, by leveraging the Fincare merger and shifting to high-yield assets.
DROPPED
Credit card issuance moderated to ~600,000 cards per year
Credit card issuance will be moderated to around 600,000 cards per year, similar to FY24 levels, to control upfront acquisition costs.
NEW RISK
Deposit cost pressure from competition
Intense competition for deposits, especially from mid-sized banks, could push cost of funds higher than guided 35-40 bps increase.
NEW RISK
Microfinance asset quality stress
Collection efficiency in microfinance has dipped due to heatwave and elections, with over-leverage concerns in the sector.
NEW RISK
Credit card delinquency trends
Industry-wide stress in unsecured lending could impact credit card portfolio, though management has tightened underwriting.
NEW RISK
Universal bank license timeline uncertainty
The application process and approval timeline for universal bank license are uncertain, with no specific guidance provided.
RISK GONE
NIM pressure from rising cost of funds
Management expects cost of funds to increase by 40-45 bps in FY25, which could compress NIMs further if not offset by yield improvements.
RISK GONE
Credit card profitability uncertain
Credit card business is not expected to be profitable for at least two years, with high credit costs (~6-6.5%) and potential regulatory changes adding uncertainty.
RISK GONE
Regulatory risk on microfinance pricing
An analyst raised the possibility of RBI imposing a yield cap on microfinance loans, which could impact the bank's strategy to grow MFI to 10% of the book.
RISK GONE
Integration execution risk from Fincare merger
The merger with Fincare adds complexity; integration of systems, cultures, and branches must be seamless to realize synergies and avoid disruption.
🤫 Topics management stopped discussing
Mentioned in Q1 FY24, Q3 FY24
Management expects credit card business to break even by the last quarter of FY25, as the book seasons and term book builds.
Mentioned in Q1 FY24, Q2 FY24
Full-year cost-to-income ratio expected to land similar to last financial year, despite investments.
Mentioned in Q2 FY24, Q4 FY24
The merger with Fincare adds complexity; integration of systems, cultures, and branches must be seamless to realize synergies and avoid disruption.
Mentioned in Q2 FY24, Q3 FY24
Management guided that full-year NIM will be at the lower end of 5.5%, considering cost of funds pressure and securitization income recognition.
Fast read
Guidance and risk preview
Management aims to grow deposits by 25% this fiscal, with INR 25,000 crore incremental deposits needed over the next nine months.
Intense competition for deposits, especially from mid-sized banks, could push cost of funds higher than guided 35-40 bps increase.
View Risks →