AU Small Finance Bank asset quality detoriates, audit officer exit; what does it mean to you?

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Shares of AU Small Finance Bank tanked over 9% in the last two trading session as the bank witnessed deterioration in the asset quality in Q4FY2021.

The fresh slippages of loans surged to Rs 1244 crore in Q4FY2021, while the recovery, upgradations and write-off together were negligible at Rs 44 crore.

GNPA increased to 4.3% end March 2021 from 3.7% end December 2020, of which an increase of 1.5% is driven by a pool of customers who are <90 dpd and paying but were Once NPA and have been tagged as NPA due to Supreme Court vacating the stay on NPA tagging. The bank expects majority of these NPAs to regularize.

That apart bank has reported 38% growth in net profit at Rs 168.98 crore for the quarter ended March 2021. The bank has posted healthy 18% growth in net interest income (NII), while the non-interest income of the bank also improved 51% in Q4FY2021. The Net Interest Margin (NIM) of the bank eased to 5.30% in Q4FY2021 compared to 5.50% in the corresponding quarter of the previous year. On the business front, the loan book of the bank has surged 22% to Rs 37712 crore end of March 2021, while the CASA ratio of the bank has moved up to 23.0% at the end-March 2021.

Brokerage views

“AU Small Finance Bank’s strong asset growth was marred by weak asset quality, with a 100 basis points q/q increase in GNPAs. The extent of the increase in GNPAs was a negative surprise; while well provided for, we are concerned about the aggressive disbursals done in the past two quarters (36% of Mar’21 AUM), which remain unseasoned entering into the second wave of COVID-19,” said Nomura in its report.

The global brokerage firm believes that the bank will have to slow down its growth, given the uncertain environment, and will need to demonstrate stable asset quality before the current rich valuations can be justified. Citing this Nomura has cut the AUM growth estimate for FY22F to 20% vs 25% earlier while continuing to build in +25% growth beyond FY22F.

Post-Q4FY21 earnings were declared, AU Small Finance Bank announced the resignation of Nitin Gupta, Chief Audit Officer. The audit committee accepted his resignation with effect from May 13, 2021 and the new Chief Audit Officer (Internal Audit) will take charge from May 14, 2021. Gupta will remain in employment with the bank until completion of his notice period, said the bank in an exchange filing.

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