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Prolonged MFI stress
View Risks →AU Small Finance Bank Limited — Q3 FY25
AU Small Finance Bank reported Q3 FY25 PAT of INR 528 crore, down 7% QoQ due to elevated credit costs in MFI and credit cards.
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AU Small Finance Bank reported Q3 FY25 PAT of INR 528 crore, down 7% QoQ due to elevated credit costs in MFI and credit cards. Net interest margin declined 23 bps QoQ to 5.9%, impacted by higher investment mix and adverse loan mix. The bank maintained strong cost control with cost-to-income at 54% for Q3, but expects full-year ratio of 57%-58%. Loan growth guidance was revised to ~20% for FY25, with secured assets growing 23%-24% and continued degrowth in MFI and credit cards. Management highlighted green shoots in MFI collection efficiency (98.7% in December) but expects elevated credit costs for 2-3 quarters. The universal bank application process is progressing with RBI's new advisory committee. Key risk: prolonged stress in MFI and credit card portfolios could delay ROA recovery to 1.6% guidance.
AU स्मॉल फाइनेंस बैंक ने तीसरी तिमाही में 528 करोड़ रुपये का मुनाफा कमाया, जो पिछली तिमाही से 7% कम है। इसकी वजह छोटे कर्ज और क्रेडिट कार्ड में बढ़ी हुई लागत है। ब्याज दरों से होने वाली कमाई घटकर 5.9% रह गई। बैंक ने खर्चों पर काबू रखा, लेकिन पूरे साल खर्च 57-58% रहने का अनुमान है। अब कर्ज बढ़ोतरी का लक्ष्य 20% कर दिया गया है, जिसमें सुरक्षित कर्ज 23-24% बढ़ेगा और छोटे कर्ज व क्रेडिट कार्ड घटेंगे। दिसंबर में छोटे कर्ज की वसूली 98.7% रही, लेकिन अगले 2-3 तिमाहियों तक लागत अधिक रहेगी। यूनिवर्सल बैंक बनने की प्रक्रिया चल रही है। मुख्य जोखिम: छोटे कर्ज और क्रेडिट कार्ड में लंबी परेशानी से मुनाफा 1.6% तक पहुंचने में देरी हो सकती है।
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Read Transcript →Quarter Snapshot
CASA Ratio
31%
-3pp QoQ
CASA ratio declined due to withdrawal of government accounts, but average quarterly balances grew 5.9% (CA) and 4.4% (SA) QoQ.
MFI Collection Efficiency (non-overdue)
98.7%
+0.3pp MoM (Dec vs Nov)
December collection efficiency improved to 98.7%, the second best in H2, signaling early recovery in MFI.
Cost of Funds
7.06%
+1bp QoQ
Incremental cost of funds improved to 7.4% YTD from 7.7% in FY24, but tight liquidity may pressure future costs.
MFI GLP
INR 7,150 Cr
-6% QoQ
MFI book declined 10% YTD as the bank prioritized asset quality over growth amid industry headwinds.
What Changed vs Last Quarter
NEW
FY25 loan growth of ~20%
Total loan portfolio expected to grow around 20% for FY25, with secured assets growing 23%-24% and continued degrowth in MFI and credit cards.
NEW
FY25 cost-to-income ratio of 57%-58%
Full-year cost-to-income ratio expected to be 57%-58%, with Q4 seasonally higher expenses.
UPDATED
FY25 ROA guidance of 1.6%
Despite elevated credit costs, the bank expects to be within striking range of 1.6% ROA for FY25.
UPDATED
Cost of funds guided to 7.10%-7.15% for FY25
Even after recent rate hikes on savings and FD, cost of funds expected at lower end of guided range.
DROPPED
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.
DROPPED
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 RISK
Prolonged MFI stress
MFI credit cost of 5.4% annualized YTD and elevated SMA pool of 4.4% may persist for 2-3 quarters, impacting overall profitability.
NEW RISK
Credit card portfolio deterioration
Credit card book declined 9% QoQ with credit cost of 9.2% YTD; corrective actions may take 1-2 quarters to show results.
NEW RISK
Liquidity and cost of funds pressure
Tight banking system liquidity and persistent inflation may keep cost of funds elevated, impacting NIMs.
NEW RISK
Economic slowdown impact on secured assets
Analyst raised concern about sequential asset quality changes in secured book; management confident but GDP slowdown could affect informal segments.
RISK GONE
MFI credit cost could exceed 3% annualized
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.
RISK GONE
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.
RISK GONE
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.
RISK GONE
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.
🤫 Topics management stopped discussing
Mentioned in Q1 FY24, Q2 FY25
Credit cost in unsecured book was ~8.5% in H1 vs guided 6.5%; management expects elevated levels in H2 as well.
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, Q2 FY25
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.
Fast read
Guidance and risk preview
Total loan portfolio expected to grow around 20% for FY25, with secured assets growing 23%-24% and continued degrowth in MFI and credit cards.
MFI credit cost of 5.4% annualized YTD and elevated SMA pool of 4.4% may persist for 2-3 quarters, impacting overall profitability.
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