AU Small Finance Bank Q1 FY 23 Research Tear Sheet

AU Small Finance Bank Limited is an Indian Small finance bank, based in Jaipur, India. It obtained the licence in 2015 and started the journey of Small Finance Bank. It received the Scheduled Bank status on 1^st November and became a Fortune India 500 Company. In 2021 it became the largest Small Finance Bank of the country. It provides the facility of digital platform AU 0101, Credit Card and QR Codescanning .It has expanded its operation in 953 banking touchpoints, serving 30.7 Lakh customers in 20 States & 2 Union Territories. The bank has a net worth of ₹ 7,789 Crores , deposit base of ₹ 54,631 Crores and Assets Under Management (AUM) of ₹ 50,161 Crores respectively. It is listed both in BSE and NSE.

Product Portfolio-The Products offered by this bank include AU0101 App, Netbanking, Video Banking, Whatsapp Banking, and Missed call banking. It helps the customer in opening different accounts – Savings Account, Current Account, Term Deposits, Bank Lockers. It provides the facility of Debit Card, Credit Card, Commercial Credit Card & Silver Spoon Dinning Program. It supports the customers by providing loan facilities like Personal loan, home loan, vehicle loan and Gold loan.

The AU0101 App has made life much easier for us. People do not need to visit the bank. They can open savings accounts and book fixed deposits through this process. This is a very user friendly, convenient and secured app. AU 0101 NetBanking  gives the access to use the feature of banking from comfort of home. It provides the feature of 24* 7 banking. Video Banking helps to access the bank as per the customer’s convenience. It is a very safe system, verification is done through OTP based mobile number verification, AI based facial recognition and personalised security questions. The customers can access the facility of Whatsapp banking by scanning the QR code. Customers can even access the facility of missed call banking. They only need to dial the  toll-free number and they can avail  mini statement, account balance  etc.

AU Small Finance Bank provides savings accounts based on different needs of users.They offer interest rates  up to 7% p.a and monthly interest pay-outs. The customers can open the savings account from the comfort of their home. AU Small Finance Bank also provides the facility of Current Account. It helps to manage large volume of receipts and payments systematically. It provides three types of Current Accounts- the Vishesh Current Account, Regular Current Account and Power Current Account.  It also provides the facility of Term Deposit. Here we offer an amount to the bank in lieu of interest for a specific time period. AUSmall Finance Bank  provides the facility of Fixed Deposit, COVID shield Deposit and Recurring Deposit.  The bank provides locker facility at low rentals and minimum documentation.

The bank provides card facilities for its customers. It provides debit card, credit card, commercial credit cards. It also facilitates the customers with personal loan for tenure of 12-60 months. The Processing fee is  Up to 2.5% of the approved loan amount. Overdue interest is calculated on 3% per month on the outstanding amount. The Bank provides home loan for purchase of house, construction of house, Home improvement loan. AU Small Finance Bank provides vehicle loan for its customers. Vehicle loan includes car loan, two wheeler loan, commercial vehicle loan and tractor loan. It also provides loan against vehicles. Customers can mortgage their car, commercial vehicle and tractor to obtain the loan. The Bank also provides gold loan to meet the shortfalls of individual. They can mortgage their gold to obtain this loan. Loan processing and renewal fees of only up to 1%.Bank launched the LIT (Live it Today) credit card. This is a customizable card which gives the flexibility to customers to build the card’s features as per their requirements. It has also Launched Commercial credit cards for corporate.

Industry Analysis

In the current scenario the demands for banks have increased due to Increase in working populations and growing disposable income. The banks are inclined more towards digital innovation. Banks with lower NPA and High net interest margins are preferable in the Industry. The Indian banking system consists of 12 public sector banks, 22 private sector banks, 44 foreign banks, 43 regional rural banks, 1,484 urban cooperative banks and 96,000 rural cooperative banks. The Indian banking has moved to digital banking. The digital payments revolution has triggered a massive change in the entire lending/borrowing procedure.

Digitization-The bank has moved towards digitization. It has focused in the development of AU 0101, Video Banking, Credit cards, UPI QR. In this quarter it has issued 80k+ credit cards and installed 1.7 Lac+ QR codes. The bank has successfully opened 1.5 Lac+ Savings Accounts through Video Banking. It has expanded in 34 new touchpoints and its physical network is now spread across 953 touchpoints as on June 30, 2022 across 20 states and 2 Union Territories. The customers are gained through digitization. They are getting Extensive range of digital products and services sitting at their home. Customers can access 24×7 banking services with AU 0101 App and NetBanking. The digitization improves process efficiency and reduces human errors. It also saves time and helps in better understanding of customer need and preferences.

Financial Snapshots- Total income stood at ₹ 1,979 Crore, increased  26% YoY. NII  stood at ₹ 976 Crore, grew 35% YoY. Net profit  increased by 32% YoY to ₹ 268 Crores. Deposits increased  by 48% YoY to ₹ 54,631 Crores. Loan AUM grew by 37% YoY to ₹ 50,161 Crores. Bank’s total balance sheet increased by 38% YoY to ₹ 71,041 Crore.

Other Highlights- ForQ1’FY23, ROA stood at 1.5% and ROE at 14%. The PCR is  at 72%. The Bank has added ₹ 144 Cr in contingency provisions and ₹ 170 Cr towards standard restructured loans. Capital adequacy is steady at 19.1% and CRAR of 20.0%. The bank has successfully added 3.2 Lac customers in Q1 out of which 43% are through digital channels. The workforce increased by 2000 people.

Strength, Weakness, Opportunity & Threat

Strength-It has a strong market leadership position in the Consumer Financial Services industry. It has been successful in creating diversifying product mix. It has a strong record of innovation and obtaining customer satisfaction.

Weakness- The Company is mainly focused in India. The revenue is focused in India. Economic factor can affect the revenue. AU  small bank lacks in research and development especially in customer services oriented applications. Major development needed for the rural branches. Inflationary pressures remain the key risk for opex in the current environment.

Opportunities- The bank has presence mainly in India so it should focus to expand in international markets also. AU0101 is very good software it should focus on further development. It should target to increase customers in the lower segment.

Threats- The pandemic, economic turbulence are a major concern. It is facing a major challenge due to stiff competition from other players. Another major challenge faced by the bank is increasing commoditization of the products in financial industry.

Key Developments

Major Achievements- AU Small Finance Bank received “Golden Peacock Award” for CSR. It has also won ‘Best Small Finance Bank’ at the MSME Banking Excellence Awards 2021 by CIMSME. It has recognized at the Retail Banker International Asia Trailblazer Awards 2022.

Introduction of New Products- The bank introduced LIT  which is India’s first customizable credit card. Introduced Corporate credit card specially for corporate. Introduced for UPI for non-AU customers. Video banking has been introduced for NRI customers. 33K+ digital loan introduced for existing liability customers.

Technological Improvement- The bank has focused on technological improvement. It has onboarded new applications on cloud. It has adopted Modernization of selected customer facing applications. 73 processes  are automated using RPA, 160 more have been  identified. ‘SmartRM’ App has been launched for branch sales team. The bank has reduced month end batch processing time by 30% while transactions volume increased by ~300% over last year.

ESG Initiative- AU Small Finance Bank launched “Save Soil Movement” during Q1’FY23. It conducted  awareness campaigns across entire Bank including ATM and branches. It has organized  420+ financial and digital literacy camps at rural branches. Launched Employee Wellbeing Program with Mfine in May 2022. In that programme 24,166 employees signed up.