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AU Small Finance Bank Limited — Q4 FY24
AU Small Finance Bank reported a strong Q4 FY24 with gross loan portfolio growth of 28% YoY to ~INR 82,000 crore and deposit growth of 26% YoY crossing INR 87,000 crore.
bullish
high
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AU Small Finance Bank reported a strong Q4 FY24 with gross loan portfolio growth of 28% YoY to ~INR 82,000 crore and deposit growth of 26% YoY crossing INR 87,000 crore. Asset quality improved with gross NPA down 26 bps QoQ to 1.47%. The merger with Fincare Small Finance Bank was completed in record time, adding 1.1 crore customers and 2,383 touchpoints. Management aims to defend 1.6% ROA in FY25 by shifting disbursement mix toward high-yield assets (targeting 75% of disbursements from >3% ROA products), improving branch profitability, and moderating credit card issuance. Key risks include continued NIM pressure from elevated interest rates and potential regulatory changes in microfinance pricing.
AU स्मॉल फाइनेंस बैंक ने चौथी तिमाही में शानदार प्रदर्शन किया। कर्ज पोर्टफोलियो 28% बढ़कर 82,000 करोड़ रुपये और जमा 26% बढ़कर 87,000 करोड़ रुपये से अधिक हो गया। खराब कर्ज (NPA) घटकर 1.47% रह गया, जो पिछली तिमाही से 0.26% कम है। फिनकेयर स्मॉल फाइनेंस बैंक का विलय रिकॉर्ड समय में पूरा हुआ, जिससे 1.1 करोड़ ग्राहक और 2,383 सेवा केंद्र जुड़े। बैंक अब ज्यादा मुनाफा देने वाले कर्ज पर ध्यान देगा, जैसे 75% कर्ज ऐसे उत्पादों में देना जिनसे 3% से अधिक रिटर्न मिले। शाखाओं का मुनाफा बढ़ाने और क्रेडिट कार्ड जारी करना कम करने की योजना है। मुख्य जोखिम: ब्याज दरों के बढ़ने से मुनाफा कम होना और माइक्रोफाइनेंस की कीमतों में सरकारी बदलाव।
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NIM pressure from rising cost of funds
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Gross Loan Portfolio
INR 82,000 crore
+28% YoY
Gross loan portfolio grew 28% year-on-year to approximately INR 82,000 crore.
Deposits
INR 87,000 crore
+26% YoY
Total deposits crossed INR 87,000 crore, registering 26% year-on-year growth.
Gross NPA
1.47%
-26 bps QoQ
Gross NPA improved by 26 basis points quarter-on-quarter to 1.47%.
CASA Ratio
33%
+10% QoQ
CASA deposits increased 10% quarter-on-quarter, with CASA ratio at 33%.
What Changed vs Last Quarter
NEW
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.
NEW
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.
NEW
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
Steady-state credit cost of 1.0-1.1% on advances
Management guided for a steady-state credit cost of approximately 1.0-1.1% on advances (70-75 bps on total assets), including the MFI portfolio.
DROPPED
NIM for FY24 at lower end of 5.5%
Management guided that full-year NIM will be at the lower end of 5.5%, considering cost of funds pressure and securitization income recognition.
DROPPED
Credit card breakeven by FY25-end
Management expects credit card business to break even by the last quarter of FY25, as the book seasons and term book builds.
DROPPED
Loan growth of 26-27% by March 2024
Sanjay Agarwal guided that on-book loan growth will be around 26-27% by end of FY24, partly due to base effect.
DROPPED
Investment spend on new businesses to continue at similar run-rate
Operating expenses for credit cards, QR, and video banking will remain elevated with ~55-60% growth in these cost heads next year as well.
NEW RISK
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.
NEW RISK
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.
NEW RISK
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.
RISK GONE
Elevated credit cost on credit card book
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.
RISK GONE
Post-merger integration and MFI credit risk
Fincare merger adds MFI book with ~3% expected credit cost; integration and asset quality management remain key risks.
RISK GONE
High NTB credit card issuance may lead to adverse selection
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.
🤫 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, 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 expects to grow the balance sheet by around 25% per annum over the next three years, consistent with historical growth rates.
Management expects cost of funds to increase by 40-45 bps in FY25, which could compress NIMs further if not offset by yield improvements.
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