AU Small Finance Bank’s balance sheet to grow 25% CAGR in three years, says MD & CEO Sanjay Agarwal

Sanjay Agarwal, Managing Director & CEO, AU Small Finance Bank

The balance sheet of AU Small Finance Bank is expected to grow at a 25 percent compound annual growth rate (CAGR) for the next three years after the merger with Fincare Small Finance Bank, said Sanjay Agarwal, managing director and chief executive officer in an interaction at Jaipur.

“If we grow at 25 percent CAGR balance sheet in a year, for the next three years, then it is enough for us because now there is pressure on deposits,” Agarwal said.

Currently, the balance sheet size of AU Small Finance Bank is Rs 1.09 lakh crore and Finance Care Small Finance has Rs 17,267 crore. The merged balance sheet now stands at Rs 1.27 lakh crore.

The merger

AU Small Finance Bank had announced the merger with Fincare Small Finance Bank in October 2023.

On January 23, the Competition Commission of India (CCI) gave approval for the merger and on March 4 the Reserve Bank of India (RBI) approved the Scheme of Amalgamation between both banks.

The effective date of the merger was April 1, 2024.

Agarwal added that after the merger the base has increased and this much growth is enough.

“After the merger the base has changed, so it does not necessarily mean growth will be faster. We think we should give sustainable, accountable, and responsible,” Agarwal said.

Also read: AU Small Finance Bank's Q4 net profit falls 13% to Rs 371 cr; declares dividend

The bank’s deposit grew 49 percent CAGR to Rs 87,182 crore in the fourth quarter of FY24 from Rs 80,120 crore in the previous quarter.

As per an investor presentation, Fincare Small Finance Bank has deposits of Rs 10,522 crore, and the merged deposit base will become Rs 97,704 crore.

Standalone gross advances of the lender stood at Rs 73,999 crore as on March 31, a growth of 33 percent CAGR.

Borrowing costs

Agarwal said during the interaction that borrowing costs have increased 84 bps in the last one year.

The cost of funds of the bank rose by 8 basis points (Bps) on-quarter to 6.98 percent for the fourth quarter of FY24 and the average cost of funds at 6.80 percent, which was up 84 bps from last year.

The lender had the cost of funds at 5.96 percent, as per the investor presentation.

The cost of funds for FY25 is expected to be higher by 40-45 bps over FY24, the bank said in the presentation

Also read: AU Small Finance Bank launches credit cards with exclusive features. Check details

Q4 results

The lender reported a 12.69 percent fall in net profit to Rs 370.74 crore in the fourth quarter of FY24 as against a net profit of Rs 424.63 crore in the corresponding quarter a year ago.

In the reporting quarter, the asset quality of the lender deteriorated marginally, with the gross non-performing asset (NPA) ratio rising to 1.67 percent, as compared to 1.66 percent in a quarter-ago period.

Similarly, the net NPA ratio rose to 0.55 percent as on December 31 as compared to 0.42 percent in the year-ago period.

Provision coverage ratio of the bank stood at 76 percent in FY24 as compared to 78 percent in the last fiscal year.