Release Date: April 22, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- AU Small Finance Bank Ltd (NSE:AUBANK, Financial) achieved a 27% year-on-year growth in its deposit book, significantly outperforming the banking sector's average deposit growth of 10.1%.
- The bank's loan book grew by 20% year-on-year, surpassing the banking sector's average loan growth of 10.8%, despite a decline in the unsecured book.
- The bank reported an improvement in branch profitability, with 49% of branches becoming profitable in Q4 FY '25 compared to 25% a year earlier.
- AU Small Finance Bank Ltd (NSE:AUBANK) maintained a strong asset quality in its retail secured assets and commercial banking segments, which form 87% of its total loan book.
- The bank's cost-to-income ratio improved significantly from 64% in FY '24 to 57% in FY '25, driven by tight control on overheads and marketing costs.
Negative Points
- The bank faced higher credit costs in its microfinance and credit card segments, impacting overall profitability.
- AU Small Finance Bank Ltd (NSE:AUBANK) experienced a decline in its unsecured book by 18% for the year, with the microfinance segment declining by 17%.
- The bank's return on assets (ROA) was 1.5%, which was lower than expected due to elevated credit costs.
- There is uncertainty regarding the impact of evolving regulations and macroeconomic conditions on the bank's future performance.
- The bank's net interest margin (NIM) is expected to face pressure in the near term due to the impact of interest rate cuts and changes in the asset mix.
Q & A Highlights
Q: With the recent 50 basis points rate cut, are there plans to adjust the SAR rates in line with the system?
A: Sanjay Agarwal, CEO, explained that AU Small Finance Bank has already reduced term deposit rates by 25 bps and rationalized savings account buckets. However, further reductions would depend on actions from competitors, as their CASA ratio is below 30%, making it challenging to cut rates below 7% at this time.
Q: What is the outlook for credit costs, especially in the MFI and credit card segments?
A: Rajeev Yadav, Deputy CEO, noted that credit costs are expected to remain elevated for the first two quarters of FY '26, particularly in the MFI and credit card segments. However, they anticipate a strong pullback in the second half of the year, with overall credit costs expected to decrease compared to FY '25.
Q: Can you provide an update on the universal banking license application?
A: Sanjay Agarwal, CEO, stated that the bank is in regular communication with the regulator and expects a decision on the universal banking license within the calendar year.
Q: How does AU Small Finance Bank plan to manage its PSL compliance, particularly in the MFI segment?
A: The bank is compliant with PSL requirements for FY '25. For FY '26, compliance will depend on disbursement patterns and book behavior. The MFI segment currently fulfills 50% of the bank's SMF obligations.
Q: What strategic changes have been made in the credit card business, and when is growth expected to resume?
A: Sanjay Agarwal, CEO, mentioned that the bank has tightened underwriting standards and reduced issuance through DSAs, focusing on existing-to-bank customers. They expect credit card issuance to increase to around 20,000 cards per month post-September, following a period of recalibration.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
