No plan to apply for a universal banking license soon: AU Small Finance Bank MD and CEO

We believe that we should wait to apply for the license. Meanwhile, we aim to become a larger SFB.

Jaipur-based AU Small Finance Bank does not plan to apply for a universal banking license soon, Managing Director and Chief Executive Officer (MD and CEO), Sanjay Agarwal said.

In an exclusive interview with Moneycontrol, Agarwal said that the bank wants to focus on growing organically and focus on the business with the AD-1 license and become a bigger SFB.

In the financial year (FY) 2022-23, the bank recorded an attrition rate of 47 percent, compared to 42.3 percent and 34.2 percent in 2022 and 2021, respectively. On this, Agarwal said, “Attrition is an industry-wide issue and employees have their own dreams and needs due to which they jump companies. So, sometimes attrition does not affect us.”

After reporting a robust growth in the affordable housing sector in the last few quarters, the bank said growth in the segment, for the coming quarters, will remain robust.

Your asset quality fell on a Q-o-Q basis in the April-June FY24 quarter. What happened?

Our non-performing asset (NPA) levels touched an all-time best in the March 2023 quarter which was around 1.66 percent. We do more of our lending in the semi-urban and rural areas which are more sensitive to economic changes.

It is cyclical in nature but there will be a level of comfort in the coming quarters.

How is your restructured book performing?

Initially, our restructured book was around Rs 1,400 crore, and now it's close to Rs 600 crore. And we believe that by the end of this year, this restructured number would be as good as negligible.

Several SFBs are being aggressive on the affordable housing segment. How is your bank performing?

The segment is very important for us as it completes our inclusive banking business.

Despite the challenges during the pandemic, we were able to build a book of around Rs 4,700 crore in the affordable housing segment, which is about 7 percent of our total book. Also, we believe that there is a good runway available in the segment for the next few years.

What is your assessment of the ECL norms?

At the end of every quarter, we assess our internal book. So far, we are very comfortable with the draft ECL norms.

What is the status on your universal banking license?

Our Chairman 2021 said that the next logical step for us would be universal license but we think that people are over reading it. The Chairman’s statement is more about future goals, plans and future strategy. It was not our near-term strategy.

Also, it is up to the regulator to decide the real impact and the real purpose to really upgrade us. The on-tap licensing is for the new players in banking, but we are very established. So, we should wait for that. Meanwhile, we aim to become a larger SFB.

We got the AD-1 license recently, so we would like to work on that. And whenever the opportunity comes, we will be there to think it through and will be happy to apply for the license.

Attrition has been increasing in SFBs. Your bank recorded high attrition in FY23. How do you see that?

Attrition is an industry wide issue and employees have their own aspirations and needs due to which they jump companies. Hence, sometimes attrition does not affect us.

Lastly, what would be your outlook for FY24?

There is competition among banks on deposit accretion and we plan to focus on low-cost deposits. In line with this, we expect a 27-28 percent deposit growth.

Our asset quality is comfortable, and we plan to reorganise our digital banking experience. Other than this, we plan to focus more on compliance and governance issues to keep a vigilant eye on the overall performance.