Thank you. Thanks Jayant.
Yes, thank you. Thanks Akshay.
Questions across 8 calls
Prince Tiwari
Firm not listed in source transcripts
AU Small Finance Bank Limited
Nitin, hi, Prince here. So, if you see, on the capital adequacy side, there were certain changes in regulations this time, where a regulator has now allowed interim profits to be added to the capital adequacy. But on the other side, there were certain capital reductions, which have now been risk- weighted. And because of that, while we have got the capital benefit, the risk weights have gone up on some of the securitization transactions that we used to do. So, it's purely, most of it actually is only a technical adjustment. Nothing to read into it.
Thanks, Nitin. Thank you.
Thanks, Mahrukh. This is Prince here. So I mean, while I'll take the other income, I'll let Vivek answer on the credit cost. So as far as other income is concerned, you're right. I mean, typically, Q1 is generally a relatively slower quarter, immediately after the Q4 buoyancy. But historically, I think in the retail banking industry, if you see the half yearly closing and the annual closing, it has always been great, both in terms of business disbursements as well as the third-party product distribution. So even this quarter, we saw 20% growth in our disbursement numbers on a quarter -on-quarter basis. And that does help in the overall other income as well, because you get a lot of fee income from the processing fees as well as the higher accounts that we have opened. So even on the banking fee, if you see, and I think Gaurav articulated in his call that we have started opening accounts for our asset customers, and we have opened some 95,000 accounts in the last 6 months. So that's an added delta that has come up over and above the branch banking. And to some extent, that also helps with the entire branch banking fees, right? So I think there's no one- offs there. It's just seasonal, and hopefully, it should continue. Vivek, do you want to...
Yes, Param. So again, as we said -- as Gaurav said in his commentary earlier that the margin uptick kind of began a bit earlier than what we would have initially envisaged. And again, the deposit repricing, especially on the entire SA piece that we have taken. I think that has been one of the biggest beneficiaries. Also lower slippages has helped, right, given that last quarter, there was a relatively larger slippage. This time, we had a lesser slippage, 12% reduction. So that has also helped in terms of reversals of some of the incomes. But having said that, to answer your question, I think the impact of repo rate cut on the yields is done, right? We don't think that any more residual impact is left over, which is material or meaningful to call out. So assuming no more rate cuts, right, assuming no more rate cuts, you would see deposit price continuing to fall for a couple of quarters because we had said earlier as well that it takes about 12 to 15 months for the entire rate transmission to happen. And we are just about 4 to 6 months into the cycle depending on where you start from, right? So we do expect some amount of deposit repricing. But at the same time, as you rightly said, the asset mix is also shifting, right? The unsecured, while they will stop degrowing from this quarter onwards, but still the growth will not be more than enough to take care of the asset mix change. So because on the core assets also, we are growing pretty well, right? As you saw, 22% we grew year-on-year in our core assets. So I think some bit of adjustment for asset mix and some positive benefit on the cost of fund side should help the NIM to continue improving for next couple of quarters, at least.
98.7%.
Hi Ashlesh, Prince here. So, Ashlesh, I think, when we did the last call, we had guided that, we want to peg our growth given the size to the economic activity in the country. And we had said that we look forward to grow anywhere between 2 to 2.5x of nominal GDP. Some of the stress was expected. I think when we did that (Q4) call, we very clearly articulated that stress on the unsecured side would take a couple of quarters to resolve itself before it kind of picks up the growth pace. And that was factored in. I don't think fundamentally anything changes there. We will still target anything between 2 to 2.5x of nominal GDP growth. Even on this quarter on a year-on-year basis, we have grown by 18%. And you know Q1 is a seasonally weak quarter. So I think growth will pick up. Most of the impediments to the growth, at least at the economic level as well, in terms of the liquidity, the entire inflation, the CRR cuts have been announced. Some of those things have reversed. So hopefully, I think at this point we can only hope that the economic activity picks up across the country and the growth goes through. But from our perspective, we are very, very clear that the heavy lifting on the growth from our side will be done by vehicle financing, will be done by commercial banking and gold loans. All of these portfolios can grow anywhere between 20%- 25%, that's the target that we are doing like vehicles this quarter as well has grown 26% Y-o-Y. As far as mortgages are concerned, which is the other bigger portfolio you know that we have been growing at about 15% for the last three years on a CAGR basis. Primarily, a lot of competition there. And we have now added to put up a lot of distribution there as we have articulated earlier as well, given the entire franchise that has become available from the South. There were certain gaps, which Vivek articulated that we have already fulfilled. And we are pretty confident that we'll be able to grow that business. I think immediate target on the mortgages side is to take that business from 15% to 17% - 18% growth this year and maybe 20% plus in the subsequent years. So I think we are there. It's a function of how much economy supports. I think the only surprise to earlier question as well from and that's a more market-wide surprise has been the microfinance, because our view was that probably it should start growing a bit. But again it has de-grown by 6% this quarter as well. But given the entire action that we have taken, some of the credit filters that we have re-looked at, the risk filters. We do think that this is the bottom. And even in the microfinance business, I think from this quarter you should see stabilization and maybe some sort of a growth as Gaurav articulated in his opening comments, that about 5% kind of growth that we are expecting for this financial year.
Yes. So just because this question is generally -- I'm sure, Renish, this is the top of the line question for everyone. So maybe I just wanted to put some more context into it. So Renish, if you see our Q4 margins, now primarily as far as the components of the margins are concerned, our cost of funds went up by about 7 basis points, right, We started the quarter at about 7.06 and we ended up at about 7.14 on an average from Q3 to Q4. But there was also an impact of number of days, right. So, to that extent, that got negated in this particular quarter, we didn't really see any impact from the cost of funds. so that's on the cost of fund side. But on the asset side, we did have a mix change that's been going on. our unsecured has gone down by ~17% in the full year and 10% in the quarter. And MFI is typically a higher yielding asset. So due to that mix change, we had about 5 to 6 basis points of impact, right, on the NIM side, right. As far as the rate cut impact is concerned, as you rightly said, 30% of the book broadly is variable rate book. That impact, we haven't seen as yet. Because typically it takes about a quarter for the entire impact to come through, so maybe 1 basis point, but otherwise. So that's the breakup of the NIM for Q4. So if you see, we have gone down from about 5.85 to 5.79, right? Now, as far as next quarter is concerned, again, or next financial year is concerned, again, the same factors are going to play out. So 30% variable rate book does get impacted in terms of repricing of the repo rate. Currently 50 basis point cut, if something more happens, it'll have an impact, right? As far as cost of funds are concerned, we have taken a cut on 16th of April, 25 basis points as Sanjay ji said, on savings as well as on the term deposits, right. And you know that we are a price taker in that business given our small finance bank tag, not a universal bank. So to that extent, we obviously have to depend on how the market leaders are doing. So given that we got some space, we have brought down our peak TD rate from 8% to 7.75%, and we have brought down our peak savings rate from 7.25% to 7%. Right. Going forward, we'll have to see how the market reacts and basis that we can take a call. So to summarize, one, is there a yield pressure? The answer is, yes, right. Now it also depends on how quickly we can turn around on the MFI side on how the business mix changes on the positive side going forward? And how quickly the flow-through happens through the deposits on the rate cut side, right? When the rates started going up about 3 years back, we had guided that it takes about 12 to 15 months for the full impact to pass through. Same way on this cycle also. In this cycle also, typically, you will see maybe 6 to 9 months when you'll start seeing the impact, as Sanjay said, Q3, Q4. And for the full impact to go through, obviously, it will take 12 to 15 months. So that's the broad story on NIMs. We don't want to put a number out there because a lot of factors are -- as I said, it will also depend on how quickly the rate gets transmitted through the system on the deposits.
So it's not a direct calculation, Renish. Obviously, there's an impact of the daily averages, right. How the portfolio is moving? How the deposit is priced. So as we said in the opening remarks also, we're not putting out a guidance because there are variables. We have told you all the constructs of the NIM, right? Now it's up to you for assuming. We'll come back and report to you as we have more data point.
In fact, Nitin, Prince, here, if you look at the data point, I think from June to September, it has gone down from 11% to about 8%. So it has been reducing as we speak as well.
So no, obviously, Pritesh, as we have been saying for quite some time, there's a lot of work that's going on in the banks behind the scenes in terms of trying to granulize the book, trying to grow much more. And I think from a CASA perspective, this quarter as well as last quarter also, if you saw the SA grew pretty well. Last quarter also, there was a 5% quarter-on-quarter growth. This quarter, it was 8% quarter-on-quarter growth on SA book. On CA book, I think we didn't see any growth last quarter because of the base effect from March number. But this quarter, there was a gradual buildup, plus also there are a few segments that we have been now trying to entrench predominantly around capital markets, whatever is happening in the IPO segment. So how do we capture a pie of that particular share? And some of those customers that we have onboarded who invest with us in IPOs and other things. That also is helping that CA business. But maybe I can ask Uttam ji to add more color.
Yes. So Renish, before I get on to the NIM question, just one more data point to your earlier question just for the benefit of everyone. If you go back and see last year as well, in the Q1, we did not grow our -- or we chose not to grow our deposits, right, in FY'23-'24. And then we went on to grow our deposits by 9% and 9% in Q2 and Q4 and 7% in Q3. So as Sanjay ji, articulated -- and last year, we raised between Fincare and us INR20,000 crores. This year, the requirement is INR25,000 crores with the expanded distribution. We remain confident. The question is all about cost, right, So just to put that number out there. Now as far as the margins are concerned, again, we saw some expansion in this particular quarter because of the overall enhancement in the yields. AUM Yields expansion as well as the merger benefits coming in. But we have also guided -- and the cost of fund that we saved, right? But we have also articulated that -- or what we are just talking about, that as the year progresses, we will need to raise deposits, a nd to that extent, we will have to let go some of the cost on the incremental fund side. So we'll have to see. I think for now, our guidance remains that our margins -- full year margins for this financial year will be in the corridor of last year's, which was about 5.5 %, so maybe add about 10, -15 basis points on that, but allow us to come back on that. I think anything around about -- I'll be happy with anything between 5.7% to 5.8%.
So Renish, maybe I'll start and Rajeev ji will just complement from a microfinance perspective. But if you look at our overall narrative that we had said, that we will -- given the cyclical nature of the entire business on the microfinance side, we want to do two -- we articulated two very clear guardrails in terms of securing the overall profitability and balance sheet. One was that keeping this overall size of microfinance business at about 10% of the overall AUM or the loan portfolio. Today, it is about 8%, right. And the second one was that we will have a credit cost of 3% annualized beginning first. And we have started that process now, right . We have taken it -- we haven't waited for the year, but we have started doing it from the first quarter itself. So of course, I think for the full year, you will see every quarter we're taking some amount of provision, which is over and above whatever will be required so that the total is 3%. If the requirement is more than 3%, then obviously, we'll take more than 3%, but at least -- so in this quarter, and maybe Rajeevji can talk about a bit about microfinance business itself, what's the overall view and credit cost.
So, Renish, I think if you go back to March 18 presentation on the strategy that we had done, and we had laid out what each individual product group -wise credit cost on advances. And we also said that it will depend on the mix that we go forward because the mi x is also changing compared to where it was historically. So, as you rightly said, I think the normalized book without MFI has now reached to about 70 bps on average advances. And of course, to that extent, MFI will come up, and we have already articulated that it will be about 10% of the book. So, I think anything about 1% to 1.1% on overall advances and anything around about 70 to 75 basis points on total assets is where we should work with.
So, basically, you’re right, on a stand -alone basis, as we have articulated, we do expect some more cost built up because there ’s still a gap between the cost of funds on the book and the incremental cost of funds and which we had articulated as well as in the presentation also, we have said that another 40 to 45 basis points cost of funds can go up from here on an average basis for the next financial year because this financial year, while the cost was 6.80, the exit cost for us has been 6.98 in Q4, right? Having said that, definitely, there is a merger on the cards, and we have already committed and started working as one entity with 1st April. So, Fincare obviously comes with a slightly higher margin. So, on a merge basis, our endeavor would be to protect the margins on the overall level for next financial year, at least.