AU Small Finance Bank ended the yr on an awesome be aware with a sturdy overall performance in Q4 FY19. While standard profit grew forty-two % yr-on-year, it became properly supported with the aid of sixty-two % surge in internet hobby profits (the distinction among interest income and charges), moderation in costs and lower provision.
The balance sheet remains notably small suggesting that there is enough headroom for a boom without getting impacted with the aid of broader macro headwinds. Given the sturdy management crew, diversified asset e-book, cognizance on garnering low-cost legal responsibility and income capability from value moderation, we see the organization as a very good long-term play that is in all likelihood to outperform most competitors within the medium term and consequently an ideal pick in an unstable marketplace.
Key positives
Business increase remained sturdy with assets underneath control surging 50% to Rs 24,246 crore, driven with the aid of both retail in addition to small and mid-company loans. The employer has maintained this strong asset increase trajectory over the last many quarters.

Asset boom has been properly supported with the aid of a robust boom in disbursement. In FY19, disbursement grew 49% at Rs 16,076 crore. In the sector beneath assessment, disbursement grew through close to 20% to go Rs 5,000 crore.
While the asset boom has been strong, as the ebook gets assorted, the key to maintaining excessive profitability lies in garnering highly lower-cost liability. In the past one-year, deposits have grown 2.Five instances to the touch Rs 17,079 crore. Interestingly, the absolute increase in deposits inside the beyond year has passed boom in assets and the percentage of deposits in total investment has risen to sixty-one % from forty-three % a yr again.
The control has succeeded in retaining hobby margin, thanks to stability in yield on property and price of budget, in spite of the rather difficult funding surroundings nowadays. Given that the yield at the incremental property financed through the bank is trending up, we do no longer anticipate any impending stress on interest margin.
While growing at a totally wholesome pace, the bank hasn’t on-boarded incremental risk. The ratio of chance weighted property-to-total belongings has, in fact, declined to 59% from sixty-three % 12 months returned.
The bank was reporting relatively excessive cost-to-profits ratio as it had up-fronted prices on conversion into a bank from an NBFC. With the leveraging of funding, C/I ratio is predicted to moderate, which have to be a kicker for earnings increase. The signs of the same become visible within the area below assessment with the C/I ratio declining to 58% from 61% in Q3.
AU Small Finance Bank has a healthy capital adequacy ratio of 19.3% that ought to contend with the sturdy growth that the control is making plans within the medium term.
Key negatives
Asset satisfactory has proven no apparent deterioration with said gross and net NPA at 2% and 1.3%, respectively, on the equal level because of the preceding quarter. However, slippage, i.E. Addition to the pool of NPA was sequentially a great deal better at Rs 152 crore (as compared to Rs 103 crore in the previous quarter).
While the management’s cognizance has been on garnering deposits, the share of low-price deposits (CASA) has fallen to 21% from 24% in Q3.

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