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MFI credit cost could exceed 3% annualized
View Risks →AU Small Finance Bank Limited — Q2 FY25
AU Small Finance Bank reported a strong Q2 FY25 with PAT of ₹571 crore, up 14% QoQ, driven by robust deposit growth (total deposits crossed ₹1.1 lakh crore, up 12.7% QoQ) and improved cost efficiency (cost-to-income ratio fell to 57% from 61% QoQ).
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AU Small Finance Bank reported a strong Q2 FY25 with PAT of ₹571 crore, up 14% QoQ, driven by robust deposit growth (total deposits crossed ₹1.1 lakh crore, up 12.7% QoQ) and improved cost efficiency (cost-to-income ratio fell to 57% from 61% QoQ). However, asset quality challenges persist: credit cost rose to 1.28% in H1, above expectations, due to elevated slippages in MFI (7% of book) and credit cards. Management expects H2 credit cost to remain near H1 levels, with secured assets likely improving but MFI uncertainty continuing. The bank aims to defend ROA of 1.6% for FY25. Key risks include further deterioration in MFI portfolio and elevated credit costs in unsecured lending.
AU स्मॉल फाइनेंस बैंक ने दूसरी तिमाही (Q2) में मजबूत प्रदर्शन किया। इसका मुनाफा (PAT) 571 करोड़ रुपये रहा, जो पिछली तिमाही से 14% ज्यादा है। इसकी वजह जमा में बढ़ोतरी (कुल जमा 1.1 लाख करोड़ रुपये पार, 12.7% बढ़ोतरी) और खर्चों पर काबू (लागत-आय अनुपात 61% से घटकर 57%) रही। लेकिन कर्ज वसूली में चुनौती है: पहली छमाही (H1) में कर्ज पर खर्च (क्रेडिट कॉस्ट) बढ़कर 1.28% हो गया, जो उम्मीद से ज्यादा है। इसकी वजह माइक्रोफाइनेंस (MFI) और क्रेडिट कार्ड में ज्यादा बकाया है। बैंक का कहना है कि दूसरी छमाही (H2) में भी यह खर्च ऐसा ही रहेगा। बैंक पूरे साल 1.6% रिटर्न (ROA) बचाना चाहता है। मुख्य जोखिम MFI कर्ज में और गिरावट और असुरक्षित कर्ज पर बढ़ता खर्च है।
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Read Transcript →Quarter Snapshot
Total Deposits
₹1.1 lakh crore
+12.7% QoQ
Crossed ₹1 lakh crore milestone; strong growth driven by CASA and granular deposits.
CASA Ratio
32%
stable QoQ
CASA deposits grew 11% QoQ; ratio maintained at 32%.
Cost-to-Income Ratio
57%
-400bps QoQ
Improved from 61% in Q1 due to higher efficiency and cost control; sustainable at ~60% for FY25.
MFI Collection Efficiency
98.44%
+37bps QoQ
Improved from 98.07% in Q1; early signs of recovery in October.
What Changed vs Last Quarter
NEW
Full-year credit cost around 1.28% of loan portfolio
Management expects H2 credit cost to be broadly similar to H1, with a possible variance of 10-15 bps depending on economic conditions.
NEW
Full-year cost-to-income ratio around 60%
Despite seasonally higher OpEx in H2, management expects cost-to-income to be ~60% for FY25, down from 63-64% last year.
NEW
Full-year cost of funds in 7.10%-7.15% range
Revised down from initial 7.2-7.25% due to better deposit franchise and stable rates.
NEW
Target ROA of 1.6% for FY25
Management aims to defend ROA at 1.6% despite elevated credit costs, supported by other income and cost control.
DROPPED
Full-year loan growth of 25-26%
Management guided for on-balance sheet advances growth of 25-26% for FY24, driven by liability growth.
DROPPED
NIM within guided range for FY24
NIM of 5.5% in Q2 remains within the guided range for the full year, despite structural pressure.
DROPPED
Cost-to-income ratio similar to FY23
Full-year cost-to-income ratio expected to land similar to last financial year, despite investments.
DROPPED
MFI book to be ~10% of balance sheet post-merger
Post-merger, MFI will be 8% of balance sheet, intended to be kept around 10% going forward.
NEW RISK
Credit card and unsecured lending credit costs remain elevated
Credit cost in unsecured book was ~8.5% in H1 vs guided 6.5%; management expects elevated levels in H2 as well.
NEW RISK
Secured asset slippages may not fully reverse in H2
Slippages in secured retail (67% of total) were higher than expected due to weather and election impact; recovery depends on economic pickup.
NEW RISK
LCR ratio at 112% may face regulatory pressure
Draft LCR circular could require higher liquidity; management has not yet assessed impact but noted ratio is comfortable for now.
RISK GONE
Integration challenges from merger
Merging with Fincare adds 15,000 employees and 1,300 touchpoints; cultural and operational integration could distract management.
RISK GONE
Sustained margin compression
NIM declined to 5.5% due to structural mix shift and rising deposit costs; further pressure expected if competition intensifies.
RISK GONE
Deposit franchise pressure
CASA ratio declined 4pp since March; tight liquidity and high competition may keep cost of funds elevated.
🤫 Topics management stopped discussing
Mentioned in Q1 FY24, Q2 FY24
Full-year cost-to-income ratio expected to land similar to last financial year, despite investments.
Fast read
Guidance and risk preview
Management expects H2 credit cost to be broadly similar to H1, with a possible variance of 10-15 bps depending on economic conditions.
MFI portfolio (7% of book) is experiencing industry-wide stress; credit cost in H1 was ~3.5% and may rise further if economic recovery falters.
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