AU Small Finance Bank conducted a conference call on 24 April 2024 to discuss its financial results for the quarter ended March 2024. Sanjay Agarwal, MD&CEO of the bank addressed the call:

Highlights:

The bank has sustained its growth momentum amidst a challenging macroeconomic landscape characterized by elevated interest rates and intense competition for deposit mobilization.

The deposits of the bank increased 26% and advances moved up 25% in FY2024.

The recent amalgamation of Fincare SFB into AU Small Finance Bank positions the institution for enhanced scale and efficiency. Post merger, the bank has 2,383 physical touchpoints across India.

The margins are broadly in guided range and asset quality continuing to be robust.

The bottomline of the bank was impacted by one-off charges towards stamp duty and other transaction-related expenses of Rs 57 crore in Q4FY2024.

The bank expects the cost of funds to rise by 40-45bp in FY25 causing pressure on margins.

The bank will not undertake any significant new platform-building investments until 2027.

An incremental cost of funds fell 4 bps to 7.71% in Q4FY24, while incremental disbursement yields rose 8 bps to 13.56%. The disbursement yields increased 39 bps in FY2024 as against 84 bps jump in cost of funds.

The microfinance loan book accounted for 8.3% of the loan book of merged entity.

The bank has assigned loans amounting to Rs 620 crore in Q4FY24 and overall securitized loan book stood at Rs 8180 crore end March 2024. The loan book growth including securitized book was higher at 28%.

The share of CASA deposits stood at 33% and CASA + retail TD was at 64% end March 2024.

The focuss will be on SME, vehicle and microfinance loan segments. With yield on microfinance loans higher at 25%, the bank expects its overall yield to increase ahead.

The credit cost stood at 0.59% in FY24, while the credit cost of the merged entity would be 70-75 bps on total assets and 100-120 bps on total advances.

The standard restructured loan book of the bank stood at 0.6% of gross advances end March 2024..

The bank would provide for credit cost of 2.5-3.0% on the microfinance loan book, while any unutilized portion of credit cost would be used to create a countercyclical buffer.

The bank targets to improve RoA to 1.8% by FY27. The RoA for FY25 is expected to be at 1.6%.