AU Small Finance Bank Ltd
Highlights Of Q2 FY19 and H1 FY19 Results
Last quarter CRISIL upgraded company long term assets to AA- stable from A Positive on 3rd October . Short term rating vary to CRISIL A1+
On the regulatory part company is fully compliance and no tendency is pending with RBI. With respect to non-promoter shareholding requirements Morgan pincers has already bought down its holding from 15 % to 7 % ahead of the cut off time line of October 18. Last quarter company had send them its leadership and Boarded experience professionals in key positions including chief treasury officer , chief of digital bank and digital strategy , chief of payments and national credit manager for Housing.
Loan asset under management grew 66 % to 20,200 Cr as on 30th Sep.
First Half disbursement grew 74 % and crossed 7000 Cr.
Company continue to be a retail asset led bank with healthy pace of 58 % crossing the 16,000 Cr AUM mark and forming 80 % of loans AUM.
Within retail assets secured retail loans SME grew 16 % followed by wheels growing at 48 %.
Company also maintain robust asset quality GNPA stands at 2 % and Net NPA of 1.3 % as on Sep-30th .
On Branch banking front , they are focused on mobilizing deposits , third party distributions building new PFO cross selling and financial Distribution
Company maintain the deposits with 13,000 Cr which comprises of 10,800 Cr of Branch deposit and 2071 Cr of TD.
CASA grew from 645 Cr to 2802 Cr in the last one year enabling company to maintain CASA of 26 %.
Company see strong momentum in Insurance Distribution like Insurance Business , General Insurance Business and Health Insurance Business.
Company did mutual fund business of 32 Cr.
Company had installed 852 POS machine on the merchant side.
On cross sale front within the bank the liability team sold gold loans worth 29 Cr from Branch without any additional field force. For all Cross sales put together branches did cross sale of more than 300 Cr in the first half.
On the financial inclusion front company has open more than 9000 A/C in the un-bank area. Company also appointed 16 business correspondence agents to strengthen reach.
Company have maintain AUM IRR of 14.2 % and cost of funds at 7.8 %.
Net interest income grew to 601 Cr in first half of FY19 up 51 % over same period last year.
Other income grew by 53 % to 148 Cr in the first half.
Cost to income ratio was 16.7 % in the first half with the marginal improvement in the second quarter as compare to cost to income ratio of Q1 of FY19.
Reported PAT of 168 Cr for the First half and 91 Cr for the second quarter which is growth of 33-34 % respectively.
ROA for the second quarter for the first half was 1.6 % . ROE at 12.9 % for the first half of FY19.
Capital adequacy was 17.8 % as on 30th Sep which comprises of tier-1 capital of 17.2 %. Reported capital adequacy does not include PAT for the first half of FY19 . Included PAT the capital adequacy will cross 19 %.
Company is maintaining capital liquidity with more than 10 % of Deposits and Borrowing at all time. As on 8th Oct 2018 company have liquidity of 2000 Cr which along with bank line time line of 750 to 1000 Cr which is about 15 % of external liabilities and this is additional to the SLR and PLR investment that company had made in other bank.
Did company had sold any PSL in current quarter ?
This year company had not sold any PSL because of company own requirement of 75 % last year there was no requirement and this time company have to maintain 75 % PSL so to maintain that amount company have not sold much amount in this quarter.
In first quarter company was having good amount and again if there will be any access than company will sold in third quarter and fourth quarter.
In the first quarter company had sold PSL worth 4700 Cr and total income of 43 Cr was made on that. In this quarter company have recognize 12 Cr revenue on that.
How was the exposure in NBFC during the quarter ?
NBFC as a book is company focus area and company have book of around 2500 Cr with customer around 225 to 250 plus. So the ticket size has not gone up and the average ticket price is 13 Cr. Company generally lend for long term. Company book is stable with Nil overdue. And company don’t have any exposure to the companies showing in the news. So it is mix of across country across product
What was the reason for the 10 bps decline in the IRR ?
There was lot of competition in Q1 and Q2 among lending. 10 bps up and down is not significant. There is no decline in IRR and using the three component IRR has gone up.
What is the outlook on margins as the IRR is declining across segments and does company will not hike the rates in lending in the current environment ?
In current scenario company is looking to hike the rates and that is already done from 1st of October and effect will be seen from next quarters onwards. There were not much options in Q1 and lot of competition also but now onwards because of the liquidity issue the interest rates are getting to the nod and company believe that will pass some of the rates to customer. SO there will be increase in rates.
Company disbursement IRR in retail which is 80 % of the portfolio has increase from 14.3% has increase to 14.5 % in the quarter. Even for small and medium Enterprise it has increase from 11.4-11.5
Did the margins will hold at current level ?
Should be but cost of funds will also go up but and company can actually transfer most of the cost to customer so that space will now available probably it will hold with the NIM level.
What is the strategy on branch expansion and outlook on cost to income ratio ?
Company has taken its own time to understand the requirement of branches with different with different distribution strategies. Lot of discussion is going on to grow with digital method. Company had applied for a permission to RBI to open any branch so once company get approval than company will let know how they will expand distribution network going forward and regarding OPEX company is at 60 % of total income and company is looking to fill digital bank to build more distribution network , looking to build better IT framework in the company to run a very seedless. So it will require lot of investments
In SME lending what kind of collateral company have their as the NPA is high and does company see any concern on the value of the collateral ?
Company is more than adequately covered with the collateral and company have not seen any dip in the value of the collateral, the dip should be seen on the overall perspective where company have done some overall recoveries that company had done so while there is increase in the Gross NPA number for the SME segment company have also recover close to 8.5 Cr from this segment in terms of closing certain accounts.
On QOQ company capital from Tier-1 is decline 290 basis points so what was the reason for that ?
Company is thinking to raise now tier-2 because in June quarter company get massive money which was around 475 Cr and second tranch of it will come in Dec 19. So from current level to 18 month company have two option either to raise Tier-2 and second if internal accrual. SO for next 12-18 month company will raise Tier-2 and that will good enough for company to manage capital adequacy and subsequently company had invested in a vas so that asset can also be monetized as required. As of now at the end of H1 the capital adequacy ratio stands at 19 % but for whole year it is 17.7 % and out of that 17.2 % is Tier-1 so there is enough space available to raise tier-2.
What is the target for capital adequacy ratio from Tier-1 and Tier-2 ?
12 tier-1 and 6 tier-2 that’s why company is going to raise more tier-2 now.
In OD against FD the AUM has increase from 111 Cr to 514 Cr QOQ but the disbursement number was showing 231 Cr so kindly clarify that ?
In Q1 where there was unused element which was used in Q2 . The sanction limit was higher but the disbursement was lower in the quarter and the rest between two got utilized in Q2. In Q2 also where the sanction would be more but disbursement will be less that will come in the next quarter.
What kind of product company have in two-wheeler and what is company turnaround time , processing fee ?
Company have customer base of 10 lakh so whatever disbursement company is doing about 50-60 % is to existing customers. So two wheeler for existing customer is STP process for company and there is a STP Tech process into it no manual process. Fees is about 3-4 % and IRR is 23-24 %. So largely focus on existing customers and leveraging the branch networks in high geography.
Company is also approaching dealers as 40 % customers are new to Bank.
Turnaround time depend from 1 hour to 4 hours.
In this quarter company had started expanding money market term lending done by the treasury function in computation of gross AUM so what is the rationale behind doing that ?
It is a term loan so it categorized in advances under financials so it is a statutory product under loan assets. It should be a treasury asset but any loan given to a bank for more than 15 days is for advance. If it is less than 15 days than it will be on investment side and more than 15 days it will be on loans side.
In secured business loan company disburse around 870 Cr in this quarter so kindly provide the split between MSME and SME segment ?
829 Cr MSME and 43 Cr SME segment
Kindly give break up of 54 Cr of other income in the third party or cross sale what exactly is this ? On SME side GNPA is 8.4 % and last few quarters it has been around 800 cr so what is the outlook on the SME side ?
On SME , company is not growing the book much because company is making correction in that book. There are some slippage during the financial year also and 27 Cr odd of customers which is across 14 Customers they have go forward and become fresh NPA. But company have seen 8.5 Cr of recovery also which has been closed. Company also get the number of account where there is gold below 90 DPD but company will show them the good performance before they will get out of NPA.
The stress which company is seeing is it across the country or is it geography specific ?
Stress is mainly in MP , Rajkot and Delhi.
What would give confidence to give the book once so does company clarify the balance sheet ?
SME is not company focused area,. Because RBI has given company two mandate one is 50 % loan book has to be lesser than 25 lakh and second company priority sector is around 75 % so both of these push company to go toward low loans. Going forward the focus is on MSME to grow the ticket size and rather than to look at straight high ticket loan. And therefore AUM of company SME is same.
In Q2 company have disbursed only 43 Cr and AUM has decease from Q1 to Q2.
On Other income company earn 20 Cr from the training given to the other supported having distribution income of 25 Cr
Is there any plan to enter into credit card business in next one year ? Loans book is mostly in to the wheels segment so is there any plan how will company diversify ?
Company is looking for building Credit Card program but it is very niche kind of product and it require lot of expertise to understand customer because in other way it is unsecure lending to the customer. Company may do it as cross sales with existing player and as company will learn in next 2-3 years company will launch its own card . Company has also started focusing on the TAS business and different regional head their own targets and it is not easy to go their because there is lot of responsibility and demand also and company is going to enrolled. From different proposition company is successful in attracting those money. In some of the residential societies in Mumbai company had success around him even in the residential societies in Gurgaon company got the money. Company book is around 400 Cr. Company feels it is the best time to get into the wheel business and in next two-three years company will be looking to build the book in decent size. All different products have enough space to grow to demonstrate that company have well diversified book.
Does company thing that growth from current stage will improve in compete with NBFC and margins will improve from here because company cost of fund will not increase that much compare to NBFC ?
Yes and company got one of attraction in last two weeks and there is no liquidity problem of course due to environment the cost gone up by 20-30 basis points but for NBFC and HFC it gone up by 200 basis points so company positioning to deliver money is still intact and because of retail money going so high one will be able to price their assets. So going forward company can transit some cost to customer but growth rate can be different from last six month and company margins can also improve.
On the ground level does company is seeing lower competency from NBFC or is it too early ?
It will have own effect because money is not cheap and if the cost go up by 200 basis points and then the margins will shrink of NBFC so they have to look at their business model and in that sense company is at better place.
Any plan to enter into Housing finance business ?
Company have already started and build a book of around 8 Cr and it got started in April 2018. So it is a turnaround time when size will come to company and it is good to be there in these kind of market. But company want to be very important player under housing segment.
Company securitized AUM is consistently going down so what is the strategy on that front and how does it look going forward ?
Company cost of deposit is around 7 % and securitization is around 8 % so there is no sense of doing securitization and company have the alternate method like PFC . It depend on company requirement so company is getting enough deposits in terms of company liquidity requirement so that is why company had not done enough securitization. As of now company is comfortable in term of liquidity so on QOQ bases whenever company see to go for securitization company will go for it because company have to maintain its own PSL target of 75 % .
How do company see the freight rates in terms of profitability for small and large stock operator ?
At this point of time the freight are in so much control.
Kindly give difference of term deposit between retail and wholesale ?
30 % retail and 70 % wholesale , 50 % of that is non-soluble. So company don’t have any kind of liquidity issues with that.
What kind of growth in ROA and ROE is company targeting for march-19 and march-20 ?
For march-19 the profit should grow by 30 % but on safer side it won’t go below 25 % on last year basis . In term of assets growth can be 50 % , deposit can grow by 100 % so overall bank will shape in very well .
AU Small Finance Bank Ltd