AU Small Finance Bank sees no sharp reaction despite strong YoY growth

The stock has performed well during the current year so far. Year to date the stock is up 18 percent compared to 7 percent gain in Sensex and BSE Financial Services index.

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Shares of AU Small Finance Bank did not react much on July 5 despite the lender reporting encouraging business numbers for the quarter ended June. This is likely because of flat performance compared to the previous quarter.

The company said its deposits grew 27 percent year-on-year (YoY) while advances zoomed 29 percent during the quarter. However quarter-on-quarter (QoQ) deposits remained flat and advances rose just 8 percent.

“Q1FY24 saw gradual improvement in inflationary pressures amidst resilient macro-economic indicators. However, the interest rate continues to remain elevated. Amidst this backdrop, the Bank delivered consistent performance across business parameters leading to a steady start for the financial year 2023-24.” said the management of the bank in a release.

As of 9.30 am, the stock was down 0.03 percent to Rs 777.40. The stock has performed well during the current year so far. Year to date the stock is up 18 percent compared to 7 percent gain in Sensex and BSE Financial Services index.

AU Small Finance said the Bank had an Liquidity Coverage Ratio (LCR) of 151 percent as on March 31, 2023, and thus the focus in Q1’FY24 was to consume this excess liquidity instead of growing high-cost deposits.

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Accordingly, in June 2023, the bank reduced its peak deposit rates by 25 basis points across savings and retail term deposits. The retail term deposits still saw a growth of 8 percent on a QoQ basis. However, the CASA deposits de-grew owing to outflow from one large transacting government savings account in normal course of business, the bank said.

The lender said credit demand remained strong with disbursement sustaining across product segments and the Bank saw an uptick in disbursement yields on a QoQ basis. Asset quality trends continued to be “within the range” and the Bank has not securitised any assets during the quarter.

Its credit card business has now reached 6 lakh live credit cards with monthly spend crossing Rs 1,200 crore in June 2023.

Motilal Oswal in its report noted that after reporting healthy loan growth in the past many years, AU Small Finance Bank has witnessed a gradual moderation. The bank reported 27 percent loan growth in FY23
versus a CAGR of 48 percent over FY17-22. The growth during the quarter was also on similar lines.

“The management focuses on scaling up the key business lines of Vehicle Loans and MSME Loans and expanding the new segments of Housing Loans, Gold Loans, Consumer Durable Financing, and Credit Cards,” the broker said adding that it expects loan growth at a 28 percent CAGR over FY23-25.

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