In a significant milestone, AU Small Finance Bank (AU Bank) has entered the elite club of corporate entities with a market capitalization exceeding Rs 50,000 crore. The bank’s shares surged by 3 percent to reach a record high of Rs 754.8 during Thursday’s intra-day trading session. As of 12:11 PM, the stock was trading at Rs 752.15, representing a gain of 2.8 percent, with a market capitalization (m-cap) of Rs 50,154 crore, according to data from the Bombay Stock Exchange (BSE).
This impressive performance comes on the back of a remarkable 30 percent increase in the stock price since April, following the bank’s announcement of its highest-ever quarterly profit of Rs 425 crore for the March quarter. This figure marks a significant 23 percent year-on-year (YoY) increase compared to a net profit of Rs 346 crore in the same quarter last year. Such robust financial results have bolstered investor confidence in AU Bank, further driving demand for its shares.
A crucial aspect of AU Bank’s financial health is its improved asset quality. The gross non-performing assets (NPA) ratio stood at approximately 1.6 percent in March 2023, down from 1.98 percent in March 2022. Additionally, the net NPA ratio decreased to 0.42 percent of net advances in March 2023, compared to 0.5 percent in the year-ago period. This upward trend in asset quality reflects the bank’s effective risk management strategies and commitment to maintaining a healthy loan portfolio.
For the full financial year 2022-23 (FY23), AU Bank reported strong results across various key performance metrics. Deposits grew by an impressive 32 percent YoY, while advances increased by 26 percent YoY. The bank’s total profit for the fiscal year climbed 26 percent YoY to reach Rs 1,428 crore, supported by a robust 37 percent YoY growth in net interest income.
Another significant development for AU Bank is the recent reappointment of Managing Director and Chief Executive Officer Sanjay Agarwal, along with Whole-time Director Uttam Tibrewal, for another three-year term until 2026. This decision, approved by the Reserve Bank of India (RBI), alleviates concerns following a series of resignations in the risk and compliance departments last year. Stakeholders see this as a stabilizing factor for the bank as it navigates the dynamic financial landscape.
Looking ahead, AU Bank is preparing to apply for a Universal Banking License, pending guidelines from the RBI. Analysts from CARE Ratings anticipate that AU Small Finance Bank will sustain its steady growth in advances, deposits, and profitability over the medium term, all while maintaining stable asset quality and comfortable capitalization levels. The bank’s ability to sustain significant growth in its loan book, complemented by regular capital infusions through Qualified Institutional Placements (QIPs), positions it favorably. The latest QIP raised Rs 2,000 crore in August 2022, further enhancing the bank’s capital base.
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The ratings agency also pointed out that the previous restriction on promoters to maintain a minimum 26 percent shareholding is no longer applicable, as the bank completed five years of operations as a small finance bank (SFB) in April 2022. This regulatory change opens up avenues for increased capital and shareholder flexibility, which could enhance future growth prospects.
As the largest small finance bank in India, AU Bank boasts a net worth of Rs 10,977 crore, a deposit base of Rs 69,365 crore, gross advances of Rs 59,158 crore, and a balance sheet size of Rs 90,216 crore. However, analysts at HDFC Securities caution that the bank’s investments in franchise-building activities and new business ventures may temporarily impact medium-term profitability. They expect operating leverage benefits to materialize in FY25, subject to improvements in efficiency ratios and a possible turn in the interest rate cycle.
In conclusion, AU Small Finance Bank’s recent achievements and solid fundamentals reflect a positive outlook for the institution. With its entrance into the Rs 50,000 crore m-cap club and a strategic focus on growth and stability, the bank is well-positioned to continue its upward trajectory in the competitive banking landscape.
