AU Small Finance Bank conducted a concall on 22 July 2023 to discuss the financial results for the quarter ended June 2023 and prospects of the bank. Sanjay Agarwal, MD&CEO of the bank addressed the call:

Highlights:

The deposits of the bank have increased by 27% end June 2023. The bank had an excess liquidity with liquidity coverage ratio of strong 151%. The share of CASA and retail deposits stood at 68%.

The bank has reduced its peak deposit rates by 25 bps in Q1FY24 across saving and term deposits.

The cost of funds for the bank has increased by 25 bps in Q1FY24 due to continuous repricing of deposits.

The net interest margins were impacted to the extent of 38 bps due to repricing of deposits and drag from excess liquidity in Q1FY24.

Going forward, the bank sees the beneficial impact of the completion of the deposit rate repricing.

The bank aims to maintain the mix of fixed rate and floating rate loan book at current level of 66-34 going forward. The bank expects fixed rate book to benefit once the interest rate cycle turns.

The margins are expected to be in the range of 5.5%-5.7% as deposits reprice.

The asset quality is expected to remain within the range without any surprises.

The cost income ratio is expected to be maintained at similar level to FY23.

The cost to income ratio will witness pressure from investment into technology, credit cards business and transaction banking business.

The bank received AD-1 license in April 2023, while its in the process of setting up transaction banking and expects full customer offerings to be available by the end of FY2024.

The bank aims to add 60 + touchpoints in FY2024.

The bank is well capitalized.

The ECLGS loan book of the bank stands at Rs 560 crore end June 2023 with most in the performing category.

The bank has purchases PSL certificates of Rs 860 crore in 1QFY24.

The bank witnessed 10 bps rise in GNPA to 1.76%, while it expects to maintain GNPA at 1.5-1.75% and NNPA at 0.5-0.6%.

The restructured loan book has reduced to 1% of loan book or Rs 630 crore end June 2023. The bank is holding provisions of Rs 100 crore on the restructured loan book.

Within the GNPAs, the auto segment accounts for 42% and small business loans for 46% of GNPAs.