AU Small Finance Bank is optimistic about the economic recovery. The bank reported a net profit of Rs 279 crore in the September quarter and its gross non-performing assets (NPAs) narrowed to 3.2 percent.
In an exclusive interview to Moneycontrol, MD & CEO Sanjay Agarwal said the bank is not looking to chase growth now because it has recently emerged from a stressful first quarter due to the impact of the pandemic. He adds that the bank will lend wherever it is safe. Edited excerpts:
Q. How was the overall trend in Q2?
The second quarter was quite encouraging because in the initial phase there was an overhang due to the second wave of Covid-19, markets were not fully opened. But in the last 75-80 days of the quarter, things were absolutely normal. We saw people coming out to do business, our gross NPA has come down to 3.2 percent in September 2021 as compared to 4.3 percent in June 2021.
The fall is primarily because customers were available and are willing to pay back. This has given us a lot of confidence that there may be some delay but as the economy and normalcy come back, customers will repay you.
We didn’t see much demand on restructuring and people did have cash to manage their business. We also disbursed over Rs 5,000 crore of loans in the September quarter. Q2 has given us a lot of hope for the future and given that there’s not much of Covid-19 impact on the economy, our next quarter can be as normal as this one.
Our deposits franchise has grown well by 45 percent as compared to last year. Overall, very optimistic, but remain cautious.
Q. How’s loan growth looking?
Sequentially, our overall advances have grown by 4 percent. We do everything from two-wheelers to four-wheelers. Demand is strong as the impact of the chip shortage continues. We are also seeing demand in real estate in home loans. Demand in commercial banking is also there but there are no new projects coming in.
Small business loans are almost 35 percent of our book. We have seen green shoots here. We expect Q3 and Q4 to have much normalcy.
We are not looking for only growth because we are coming out of the most stressful first quarter, so I would say, we wouldn’t want to chase growth as of now. Overall momentum is there and wherever we see it is safe, we will go ahead.
Q. What is your outlook on asset quality?
If we don’t see another Covid-19 wave or lockdown, our asset quality will improve from hereon. We have reduced the bulk of it in the last quarter and there’s further scope for improvement. We haven’t done any write-offs till now. In the next two quarters we will get more visibility around our book and will start doing some kind of clean-up. There will be some reduction, too.
I can’t set any targets as of now but if things remain like current times, it will improve.
Maximum stress is being seen in the segment of commercial passenger vehicles like school buses and taxis because some of the segments and markets have not opened up, but by Q4 we will see some positive direction.
Q. How much is your total restructuring pool and how much of it do you expect to slip into NPA?
In the first framework, we have done around Rs 600 crore and in the second framework, we have done around Rs 700 crore. Overall, we have Rs 1,300 crore restructuring pool, which constitutes around 3.5 percent of our overall asset book, out of which Rs 100 crore has already been classified as NPA.
So around 20-25 percent of this book could turn into NPAs, which has already been provided.
Ninety percent of both pools was from retail and 10 percent was from the business banking and agri-banking segments.
Q. What’s your current loan mix?
We want to remain big in our small business loan book. We want to become aggressive on our home loan book and build our commercial banking space too.
As of now, 75 percent consists of wheels and small business loans, which will go down to 60 percent and have around 20 percent of book in home loans, which is currently at 5 percent.
So putting together, 80-85 percent would consist of wheels, small business loans and home loans and around 15 percent from commercial banking. We would like to achieve this number in the next three-five years.
Q. You recently entered the credit card business. How’s the traction and outlook there?
We had a really good start and have done around 50,000 cards in the first six months of launch. Monthly average we might be clocking at 15,000. By March 2022, our base could be around 1.5 lakh. The sourcing is completely organic and we haven’t done any partnerships.
We are excited about this business and in the next five years expect it to be one of the strategic businesses of the bank.
Q. To what extent have you been able to address concerns over attrition?
We have shifted much of the leadership to Mumbai in the last two years. Our executive director Uttam Tibrewal is based out of Mumbai and the entire team of branching banking and home loans is working from the Mumbai office.
Jaipur will remain our head office for some more time as our backend is in Jaipur. There are issues but we are handling it. Last time it was blown out of proportion but, of course, as we are a listed company, people have their right to view it as per their understanding.
We are very settled around our people. Largely, the commercial banking and credit card business is being run from Rajasthan and the backend and the whole governance structure. Further, people won’t be going in the near future. I can’t comment for the next 10 years but for the next 2-3 years, we are settled.
Q. Any full-year guidance on growth and NPA?
It’s only one quarter we got after the challenging impact of the pandemic. Only in this quarter were we allowed to move freely, customers were responding, vaccinations have gone up and were more on normal terms on the ground.
We would need some more time to understand how the overall damage or scenario will emerge and take the final call. We could probably comment on this in January and we remain optimistic with a cautious approach.