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Informist, Thursday, Oct. 17, 2024

By Siddhi Chauhan

MUMBAI – AU Small Finance Bank is likely to report robust year-on-year growth in net profit in the September quarter, primarily aided by the merger of Fincare Small Finance Bank with the bank. The bank's net profit is expected to rise by 27.3% on year to INR 5.11 billion in the quarter ended September, according to an average of estimates from 10 brokerages.

The year-on-year growth is not strictly comparable as Fincare Small Finance Bank was merged with the bank with effect from Apr. 1 2024. On a sequential basis, the bank's net profit is expected to rise 1.8%. The estimates for net profit range from INR 4.83 billion to INR 5.74 billion. 
 

AU Small Finance Bank is scheduled to announce earnings for Jul-Sept on Wednesday.

"AU Small Finance Bank is positioned to maintain strong growth, capitalising on the synergies from its recent merger with Fincare SFB. The merger has broadened the bank’s geographical footprint and diversified its product offerings, particularly in high-yield segments such as MFI (micro finance institutions) and SBL (securities-based lending)," Motilal Oswal Financial Services said. "The bank's loan book is estimated to grow at a 24% compound annual growth rate in next two years."

The small finance bank's net interest income is expected to rise 57.4% on year to INR 19.65 billion in Jul-Sept, according to the average of estimates. Sequentially, the net interest income is seen rising only 2.3%. The brokerages have pegged the bank's net interest income in the range of INR 18.34 billion to INR 20.33 billion. YES Securities and Centrium Broking are the only brokerages which expect the net interest income of AU Small Finance Bank to rise above INR 20 billion. 

Most brokerages expect the net interest margin to remain under pressure due to a rise in funding costs. However, the bank had said in its investor presentation in Apr-Jun that it expected a slight moderation in its net interest margins going forward. 

According to the provisional numbers released by the bank earlier in the month, the bank's gross advances grew 5.9% on a sequential basis to INR 960.30 billion and total deposits grew 12.7% to INR 1.09 trillion at the end of September.

The current account savings account deposits grew 10.9% on quarter to INR 355.20 billion. The CASA ratio was largely steady at 32.4% as of Sept. 30 from 32.9% in the previous quarter. 

The bank's asset quality is expected to remain stable, most analysts said. However, some analysts expect the stress on microfinance institutions to have some impact on the bank. "Stress in micro financeinstitutions space refuses to subside and could manifest via higher slippages or lower recoveries," Emkay Global Financial Services said. This could lead to higher non-performing assets for banks such as AU Small Finance Bank, Emkay Global said.

Analysts will keep a keen eye on the developments on the bank's plan to transition into a universal bank. AU Small Finance Bank's board on Sept. 3 submitted an application to the Reserve Bank of India seeking approval to transition into a universal bank. According to RBI norms on the voluntary transition to universal banks, small finance banks should have a scheduled status with a satisfactory track record of performance for a minimum period of five years. 

Shares of AU Small Finance Bank ended 1.8% lower at INR 152.40 on the National Stock Exchange. 

Following are the Jul-Sept earnings estimates, in million rupees, for AU Small Finance Bank based on reports compiled by Informist from 10 brokerages: 
 

End

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Edited by Saji George Titus

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