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Informist, Saturday, Jul. 25, 2026

 

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--AU Small Fin Bk: Expect cost-to-asset ratio to improve in FY27 
--CONTEXT: Comments by AU Small Fin Bk mgmt in post-earnings analyst call 
--AU Small Fin Bk: On track to add over 100 branches this year 
--AU Small Fin Bk: Remain focussed on strengthening liability franchise 
--AU Small Fin Bk: Focussed on making commercial banking business self-funded 
--AU Small Fin Bk: Focussed on increasing penetration of transaction banking 
--AU Small Fin Bk: Focussed on tech-led ops efficiencies, overhead control 
--AU Small Fin Bk: To strenthen core lending business, have robust risk mgmt 
--AU Small Fin Bk: Cost of funds have effectively bottomed out 
--AU Small Fin Bk: No indication of stress in microfin book asset quality 
--AU Small Fin Bk: Comfortable with credit-deposit ratio 
--AU Small Fin Bk: See scope for improvement in opex, credit cost 
--AU Small Fin Bk: Not able to get leverage under FCNR scheme, hiked rates more 
--AU Small Fin Bk: May not be directly benefitted by FCNR scheme 
--AU Small Fin Bk: May raise funds under RBI's swap facility for overseas loans

 

By Cassandra Carvalho and Priyasmita Dutta

 

MUMBAI/NEW DELHI – AU Small Finance Bank Ltd. is unlikely to gain a direct benefit from the Reserve Bank of India's concessional foreign exchange swap facility on foreign currency non-resident (bank) deposits of three- to five-year tenures, the bank's management told analysts in a conference call Saturday after its June quarter earnings. The bank, which does not have branches abroad, is unable to get leverage to offer its non-resident Indian customers and has instead raised interest rates on such deposits to mobilise inflows, it said.

 

"We believe that, because of our brand, because of our acceptance, we will raise some sort of money, but we are not targeting now a specific one because if you don't have a leverage, it's difficult to convince the customer," the small finance bank's management said. "...so overall, I believe we may not be directly benefited out of it, but we might have the overall benefit because of industry initiative."

 

The bank has raised its rates on FCNR(B) deposits to 7.40%, the management said. As per the bank's website, it offers 7.00%-7.10% interest per annum on three- to five-year dollar-denominated deposits. The last update on this was on Jun. 10.

 

A liquidity boost if the Indian banking system receives about $70 billion to $80 billion of inflows through these deposits would bring down the bank's cost of borrowing, the management said. The bank will raise funds through the other concessional swap facilities the RBI had rolled out Jun. 8, such as through overseas foreign currency borrowing, the executives said.

 

They said the lender's cost of funds has "effectively" bottomed out in the reporting quarter and may increase due to an increase in its savings account and deposit rates. The cost of funds also hinges on the interest rate trajectory. The bank's cost of funds fell sharply to 6.48% from 7.08% in the year-ago period. Saturday, AU Small Finance Bank reported a net profit of INR 7.96 billion for the June quarter, up 37% on year but down over 4% sequentially.

 

As for the RBI's expected credit loss norms, which will kick in on Apr. 1, the bank has sufficient provisions for stage-3 assets to cover the additional provisioning required, the executives said. The bank is currently finetuning the methodology to calculate loss given default and other models applicable under the new norms and therefore cannot yet quantify the impact it will see because of the norms, the management said. 

 

The bank sees scope for improvement in reducing its operating expenditure on an annualised basis, with the use of technology to improve operational efficiency and control overheads. Its credit costs also have scope to fall while other income should pick up within 6-9 months, the executives said. All these factors could improve the bank's net interest margin, they said. As of Jun. 30, the bank's annualised credit cost was 0.8%, down from 1.4% in the year-ago period. The management said it is comfortable with the bank's current credit-deposit ratio of 88%.

 

The bank's cost-to-assets ratio, excluding the premium for the Credit Guarantee Fund for Micro Units, was 4% in the reporting quarter. The bank expects this figure to improve for the full year. The asset quality of its microfinance book does not indicate any stress, the management said, adding that the segment is in a state of "discipline" after several quarters of contraction. 

 

The bank will continue to work on making its commercial banking business "progressively more self-funded" by measures such as deepening penetration of its transaction banking book, which itself has started to gain momentum, the management said. AU Small Finance Bank added 16 new deposit branches in the June quarter and aims to add more than 100 branches this year, the executives said.

 

The bank is focussed on boosting distribution across the country for all its products, the management said, and is prioritising the expansion of its core lending and deposit base while leveraging technology and artificial intelligence and maintaining disciplined risk management. "Overall, we remain highly focused on strengthening our liability franchise with ongoing investments in products, distribution, and branding," the management said.

 

Friday, shares of AU Small Finance Bank had ended at INR 1,004 apiece on the National Stock Exchange, up 2.6% from Thursday.  End

 

US$1 = INR 96.56

 

Edited by Rajeev Pai

 

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