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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Financial stats pending filing verification
Claim Ledger
Did management answer the analysts?
Every material analyst question, graded on whether management actually answered it — with the verbatim exchange and quantitative claims checked against filed numbers.
82%Questions answered0Evaded / deflected11Questions audited
Partial answer
High priority
Extent of pain in MFI, PL, credit card and collection build-up.
Asked by Kunal Shah, Citigroup
Management gave credit cost ranges but did not quantify the exact extent of pain or collection build-up.
deferred to next quarterno specific extent of pain given
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Question
Sir, particularly on the MFI side as well as PL and credit card, where we are in terms of the cycle and you indicated in terms of, say, improving collection efficiency, but at the same point in time, we have almost like 4.4% in SMA as well as 17% of loans wherein there are more than three lenders. So even during the transitioning, that could have an impact. So what is maybe the extent of, if you can just help in terms of understanding what could be the extent of the pain that has to be further recognized and how you have built up the collections out there?
Sanjay Agarwal (Managing Director and CEO)
We already have gone to the level of what now 5.4% credit cost in our balance sheet... we are expecting our credit cost overall, yearly basically, we are north of 6%. It might touch 7% too. That is why we have commented that our overall credit cost of the year would be in the range of 1.55%-1.6%... you have to give us one more quarter because it's just 7% of our book.
Answered
High priority
Provision on MFI SMA book and OPEX synergy outlook for FY26.
Asked by Rohan Mandora, Equirus Securities
Management provided specific provision amount and cost-to-income trajectory.
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Question
I just want to understand what's the provision that we are currently carrying on the MFI SMA book. That's one. And second, the OPEX central that we are seeing on account of merger synergies, how should one think on that for FY 2026?
Prince Tiwari (Head of IR) and Sanjay Agarwal (MD & CEO)
On the MFI book specifically, we had created a INR 17 crore contingency. That continues. We haven't utilized it. ... cost to income... for quarter four or entire year, I'm expecting to be north of 58%, but of course, lesser than 60%... the idea is to really look for lesser than a 55% cost to income in the next two years.
Answered
High priority
Confidence that secured retail asset quality will improve in Q4.
Asked by Sameer Bhise, JM Financial
Management gave specific confidence based on December collection efficiency and historical seasonal patterns.
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Question
I understand we are banking on the secured side of the book to kind of do well incrementally as well, but if I see there are some minor changes on asset quality there sequentially on a growing book. So how confident are we that that 4 Q could actually be better?
Sanjay Agarwal (MD & CEO) and Prince Tiwari (Head of IR)
I would say the collection efficiency for this particular December month has surprised us a lot. And I hope that that will continue for this quarter too. ... December onwards, December, January, February, March, DJFM, as we call it, you start seeing the better performance, recoveries, resolutions.
Partial answer
High priority
Will MFI and credit card experience recalibrate strategy? ROA roadmap.
Asked by Madhuchanda Dey, MC Pro
Management affirmed strategy but did not give a concrete ROA roadmap or timeline.
no specific timeline for ROAconditional on rate cuts
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Question
Going forward, will it make you recalibrate your strategy with respect to lending? You will kind of stick to what you understand best, which is secured. In that context, how would you like to revise or give a roadmap of your aspired ROA of 2%?
Sanjay Agarwal (MD & CEO)
I still believe that if we really want to be a good bank, we need to learn about unsecured lending... the long-term strategy won't be so dramatically different. ... the moment we start seeing the interest rate cut and our cost of money getting to a right level, you will see us reaching 2% ROA.
Answered
High priority
Reason for growth guidance cut from 25% to 20% and funding cost guidance.
Asked by Prakhar Agarwal, Elara Capital
Management explained the components of growth and why overall guidance was lowered.
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Question
In terms of growth outlook, that you have essentially brought down to around 20% from 25% within a quarter. ... So have we lowered our growth in secured segments as well, or how is the math working around from 25% to 20% growth guidance cut in one quarter that we have done?
Sanjay Agarwal (MD & CEO)
Our two books, which is Credit Card and MFI, everybody knows that we don't want to grow it again with the mindset of growth. ... secured retail assets are growing in the range of 20%-24%. Commercial banking is growing in the range of 30%. So that remained intact. And all put together, it's around 20%.
Partial answer
Medium priority
Impact of MFI slowdown on PSL objectives and cost ratios.
Asked by Pranuj Shah, JPMorgan
Management expressed confidence but did not quantify PSL impact or cost ratio improvement.
no specific PSL deficit quantificationdeferred to future
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Question
If we overlay that on your in general, assuming a 25% overall growth in FY 2026, MFI continues to taper off. So does that impact your PSL objectives for FY 2025 and FY 2026 also? And a subsequent question to that, will that impact your overall cost ratios also?
Sanjay Agarwal (MD & CEO)
In terms of SMF, we have a microfinance book. We do have the agribanking book. We do have the SMF lending. ... All put together by the support of the government guarantees also. We don't expect that we should have the SMF deficit. ... we might be we should be lesser than cost to income what we will do this year.
Answered
High priority
MFI collection efficiency and SMA to NPA slippage improvement in December.
Asked by Pranuj Shah, JPMorgan
Management provided specific December collection efficiency and confirmed improvement in SMA to NPA.
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Question
Rajeev sir, just on the MFI book, you have mentioned non-overdue collection efficiency of 98.5% as of the third quarter. Would it be possible to disclose how much this was as of December end? This is the non-overdue part. And even on the slippages in the MFI book from SMA to NPA, are you seeing an improvement there also in December?
Rajeev Yadav (Deputy CEO)
So the December number inched up to 98.7%. And that was the second best number in the calendar year H2. ... On the SMA books also, because of our strong staffing now in the recovery vertical... our efficiencies coming from the SMA book, coming from the NPA books has also started seeing improvements.
Answered
Medium priority
Impact of RBI gold loan regulatory changes on AU's business.
Asked by Ritika Dua, Bandhan
Management clearly explained the regulatory changes and AU's advantages.
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Question
In your opening remarks, you made a reference on the gold loan business and how you faster there because of a regulatory change. Could you just elaborate on that?
Deepak Jain (CRO) and Sanjay Agarwal (MD & CEO)
Gold loan regulatory changes... BC model have to be revamped... renewal has been completely stopped in the industry. ... we have the two advantages as a bank. One, we have the cost of money. Second, we have a storage facility. ... I think now it's a level playing field.
Answered
Medium priority
Strategy for CGFMU cover on MFI portfolio and cost implications.
Asked by Shailesh Kanani, Centrum Broking
Management gave a specific target of 90% coverage and acknowledged cost-benefit.
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Question
Sir, just wanted to understand our strategy for CGFMU cover. We are increasing the percentage over there, the cover. So what is the strategy? How high we are going to go? Because it will entail some cost as well, right? And have we factored in that?
Yogesh Jain (COO) and Sanjay Agarwal (MD & CEO)
Maybe going forward, maybe around 90% portfolio of microfinance will be covered in this guarantee program. Yes, cost is there, but if we see the overall benefit of coverage versus the cost, right, it is much, much beneficial.
Answered
Medium priority
Industry adoption of three-lender rule and December collection efficiency details.
Asked by Piran Engineer, CLSA
Management confirmed they have started the three-lender rule and provided December collection efficiency and historical comparison.
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Question
Just one question I had regarding this MFI industry rule from four lenders per borrower to three, which is coming from 1st April. Has the industry proactively started with three, or are there first and second?
Sanjay Agarwal (MD & CEO) and Rajeev Yadav (Deputy CEO)
We have started. ... So it was better on the SMA bucket collection efficiency also for MFI. And also, it is better on the disbursement. ... FY 2024, we were about 98.4 on that metric. 99.4% on that metric.
Partial answer
High priority
Sustainability of cost-to-income improvement and PCR level target.
Asked by Nitin Aggarwal, Motilal Oswal
Management gave aspirational targets but no firm timeline or commitment.
no specific timeline for 55% cost-to-incomePCR target conditional
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Question
So while you have given a full-year outlook, but how should one look at the forward years? Because earlier, we were looking to do 60% cost income this year, and now that has changed to 57%-58%. So will this cost-to-income improvement sustain, and will we improve further in the coming years, or will we stagnate here or go up from here?
Sanjay Agarwal (MD & CEO)
Our cost-to-income should reach 55% as soon as possible. But I can't define as soon as possible right now because there are too many variables... next year, our focus should be that we should be lower than this. ... endurance is to keep around 70% (PCR), to be honest.