Rationale

 ICRA has reaffirmed and withdrawn the [ICRA]AA- (Stable) rating outstanding for subordinated debt programme and nonconvertible debentures of AU Small Finance Bank Limited (AU) as the instruments/ISINs stand fully redeemed. The rating reaffirmation factored in the continued ramp-up in AU Small Finance Bank Limited's (AU) liability franchise, its ability to report satisfactory profitability despite the challenging operating environment, and strong liquidity position. While the asset quality has come under pressure, due to the ongoing challenging environment, it is noted that AU's reported asset quality metrics have largely stayed under control and in line with ICRA's expectation. Also, comfort is drawn from AU's past track record of comfortable asset quality trajectory. Moreover, ICRA notes that AUs capitalisation level remains comfortable with Tier-I of 21.5% and total CRAR of 23.4% as of March 2021, though it is likely to moderate over the medium term, given the growth plans. ICRA notes that as the loan book grows at fast pace, the bank may require additional capital raisings as the internal accruals are likely to be lower (despite healthy profitability) than the growth capital requirements. Also, ICRA believes that as the bank expands it will be imperative to maintain asset quality and granularity in liabilities. The credit profile remains constrained by the relatively high geographical as well as product concentration given the focused approach adopted by the bank.