AU Small Finance Bank (SFB) said that CRISIL Ratings had upgraded its rating on long-term debt instruments of AU Small Finance Bank (SFB) to 'CRISIL AA/Stable' from 'CRISIL AA-/Positive'.

CRISIL Ratings has further migrated its rating on the FD programme of the bank from 'FAA+/Positive' and simultaneously upgraded it to 'CRISIL AA+/Stable'.

The agency has also reaffirmed its rating on the certificate of deposits programme of AU SFB at 'CRISIL A1+'.

CRISIL said that the upgrade is driven by the sustenance in bank's overall performance and its demonstrated ability to meet the expectations around improvement in asset quality and earnings profile despite pandemic induced challenges. The bank's improving liability profile is also reflected in the rating.

The bank has demonstrated its ability to manage its asset quality in the post-Covid scenario and maintain non-performing assets (NPAs) at a level which is lower than peers. Post Covid-19, the GNPAs peaked at 4.3% as of March 31, 2021 and remained at elevated levels on account of the pandemic's second wave's disruption.

However, with gradual relaxation in lockdown restrictions and resumption in customer's cashflows led to improved collection efficiency, AU SFB's asset quality has revived strongly. As of March 31, 2022, the bank reported an improved GNPA of 2.0% whereas NNPA stood at 0.5% which is expected to be sustained in the medium term.

Further, the bank has also maintained healthy profitability metrics, despite heightened provisioning requirement, as reflected in the return on assets (RoA) of 1.59% and 1.28%, respectively for fiscal 2020 and 2021 (adjusted for one-time sale proceeds realized from stake sale of Aavas Financiers).

With operating profitability remaining stable and reduction in credit costs, the RoA for fiscal 2022 revived to 1.87% despite an increase in the bank's provision coverage ratio to ~75% from 45- 50% until H1 of fiscal 2022.

There has also been a sustained improvement in the bank's overall liability profile marked by increasing share of deposits in the overall external liabilities and, continued ramp up in retail deposit franchise. This also factors in the gradual increase in the share of Current and Savings Accounts (CASA) as a share of total deposits and total liabilities, over the last 4 quarters.

The ratings remain driven by AU SFB's adequate capitalisation, consistent ramp-up in deposit franchise, healthy reported asset quality, and adequate profitability. These strengths are partially offset by moderate, though improving, the scale of operations and geographic concentration in assets.

AU SFB has an established market position in Rajasthan, and has expanded operations to Maharashtra, Gujarat, and other states over the years. AU SFB's main focus is retail asset-financing segment, primarily in the vehicle financing segment (around 36% of AUM) alongside small business loans to MSMEs (35%). Other segments include housing, gold loans, personal loans, overdraft, and commercial banking products. As on 31 March 2022, AU SFB had established operations across 919 banking touchpoints while serving customers in 18 States & 2 Union Territories.

AU Small Finance Bank is a scheduled commercial bank. As on 31 March 2022, the bank had operations across 919 banking touchpoints, serving 27.5 lakh customers in 18 States & 2 Union Territories.

On standalone basis, the bank reported 104.8% jump in net profit to Rs 346.07 crore on a 26.1% rise in total income to Rs 1,978.41 crore in Q4 FY22 over Q4 FY21.

The scrip shed 0.55% to currently trade at Rs 593 on the BSE.