Company Overview

AU Small Finance Bank (NSE:AUBANK) that was started two decades ago as AU Financiers by Mr. Sanjay Agarwal, a merit holder Chartered Accountant and a first-generation entrepreneur. He, along with his dexterous team, embarked on a journey of excellence while enriching lives along the way.1

AU Small Finance Bank is redefining what a bank should be. The company enable a convenient banking experience. The company make banking simple for you. As the company grow, the company continue to be farsighted and align the interest of its community at large.

Throughout its journey AU Small Finance Bank has focused on solutions, completely based on its customers’ needs. The company's transformation, from being a finance company to a bank, which provides a place for safe keeping, is a reflection of many things that AU stands for:

  • Inclusiveness
  • Progress for all
  • Simplicity
  • Action and urgency

These are not just words. In fact, they are the very pillars on which AU Small Finance Bank serves You – the most important member of the AU family.

Business segment review

AU Bank is emerging as a trusted banking partner for customers and various stakeholders with its longstanding presence and stable growth trajectory. As a bank, its endeavour is to carve a strong and lasting identity for itself  in the banking space, which stands for trust and customer centricity. The company aspire to leverage its proven systems and skills in the small ticket secured retail lending segment, with the underserved segment as its focus. Through this, the company will empower people at the bottom of the pyramid in some of the remotest parts of the country.2

The company entered India’s dynamic banking landscape in 2017, after two decades of expertise in lending to the underserved. With over 61% of its branches in rural and semi-urban areas, AU Small Finance Bank has enhanced its focus on the unbanked and underbanked customers at the bottom of the pyramid to drive financial inclusion. Retail loan assets are its mainstay comprising over 80% of its loan AUM. Besides retail, the company also offer small and mid‑corporate loan asset products.

Retail Lending

AU Small Finance Bank has a fairly long, and stable track record in lending small ticket, secured, retail loans primarily to unbanked and underbanked self-employed individuals for purchasing assets that will generate income. The company's retail asset segment includes its three key focus products – Vehicle Loans, Small Secured Business Loans to MSMEs and Housing Loans. It also includes Gold Loans, Consumer Durable Loans and Personal Loans, along with overdraft (OD) on fixed deposits (FD).

Vehicle loan

Vehicle loan has been a key product since its inception and is the most seasoned book in its portfolio. Despite sluggish growth in the overall automobile sector, its vehicle loan AUM recorded a growth of 27% and stood at ` 12,985 crore comprising 42.0% of its total AUM during FY 2019-20. Wheels disbursements grew 16% Y-o-Y to ` 7,799 crore during the reporting year. Average Ticket Size (ATS) for this product was ` 2.4 lakh for FY 2019‑20.

The company offer one of the widest product ranges in the industry and extend credit for 2 to 22 wheeler vehicles for personal and commercial use. The company offer loans for new and pre‑owned vehicles and for refinancing of vehicles across several categories including cars, Multi-Utility Vehicle (MUV), Sports Utility Vehicle (SUVs), Light Commercial Vehicle (LCV), Medium and Heavy Commercial Vehicle (MHCVs), Construction Equipment (CE), tractors, two and three‑wheelers. The company finance vehicles for personal as well as commercial use. In the commercial space, the company serve First-Time Buyers (FTBs), First-Time Users (FTUs), Small

Secured Business Loans (SBL)

Secured business loans MSME (SBL-MSME) is a key product within the retail assets segment and comprised 36.5% of its total AUM as on 31st March 2020.

The company's loans primarily serve MSMEs with annual turnover between ` 40 lakh and ` 10 crore, having at least a few years of track record in such businesses, generating cashflows at high frequency and having limited or no formal documented income proofs (for example grocery/kirana stores, dairy/ cattle rearing and hotel/restaurants). Such loans are then secured by immoveable property, and the uses include working capital needs, expansion, purchase of machines/ equipment and infrastructure requirements. The company understand its customers’ business and their future requirements to arrive at the loan amount that can be offered to them.

The company also cater to larger businesses in terms of turnover, which have more formal and documented income proofs. The company's target Small and Medium-sized Enterprises (SMEs) include traders, wholesalers, distributors, retailers, manufacturers and self-employed professionals, and these loans are meant to meet their needs for expansion, working capital and purchase of equipment.

Gross AUMs for its SBL business increased by 44% Y-o-Y to ` 11,287 crore as on 31st March 2020. SBL disbursements grew 32% Y-o-Y to ` 4,865 crore in FY 2019‑20. Average ticket size for this product was ` 9.4 lakh for FY 2019‑20.

Home loans

The company provide a comprehensive range of home loan products to cater to every home buyer’s loan needs (self‑construction, purchase of flat/house, extension/ renovation and takeover/top-up), with a focus on the affordable housing segment. The company offer loans from ` 2 lakh to above ` 50 lakh for a maximum 30‑year tenur  for salaried customers; and 20 years for self-employed non‑income proof/self‑employed income‑proof profile customers. The company's customers can apply for loans at any ofour branches. AU Small Finance Bank has well‑trained relationship officers  who help customers select the right loan mix, calculate a suitable loan EMI and choose tenure.

Gross AUMs for its home loans business increased by 388% to ` 567 crore as on 31st March 2020 from just ` 116 crore a year earlier. Home loan disbursement increased by 326% to ` 490 crore from ` 115 crore in FY 2018-19.

Gold Loan

Gross AUMs for its gold loans business increased by 11% to ` 55 crore as on 31st March 2020 from ` 49 crore a year earlier; gold loan disbursements grew 27% Y-o-Y to ` 85 crore during the year.

Personal loans

The company offer easy and convenient personal loans that enable its customers to meet emergency needs/spends, as well as take care of all their necessities. AU Small Finance Bank has a seamless, flexible and transparent paperless loan process along with quick approvals. Existing AU Bank customers can get a pre-approved personal loan instantly with no additional documents.

Gross AUMs for its personal loans business increased to ` 181 crore as on 31st March 2020 from nil, a year earlier.

Small and mid-corporate (SMC) assets The company cater to SMEs for their business banking, working capital and trade finance needs in this segment. The company understand the bespoke requirements of businesses, therefore have created comprehensive offerings with simplified documentation and efficient turnaround time. The company also lend to Non-Banking Financial Companies (NBFCs), Housing Finance Companies (HFCs), Micro Finance Institutions (MFIs) and Real Estate Developer construction finance. As on 31st March 2020, small and mid-corporate assets declined by 3% Y-o-Y and comprised 16% of gross AUM as the company become more cautious and slowed down disbursements in Real Estate and NBFCs in the past 18 months.

Business banking

Business banking provides fund-based credit facilities such as overdraft and cash credit and non-fund-based facilities such as letters of credit and bank guarantees to SME customers. The company cater to wholesalers, retailers, traders, manufacturers, service providers, contractors, stockist, distributors, educational institutes and healthcare enterprises in this segment.

Gross AUMs for its business banking increased 33% Y-o-Y to ` 1,081 crore as on 31st March 2020; business banking disbursements grew 77% Y-o-Y to ` 1,641 crore.

Lending to NBFCs, HFCs and MFIs

After two decades of functioning as a NBFC, the company understand the need for constant stream of funds for NBFCs, which include Asset Finance Companies (AFCs), Housing Financial Companies (HFCs) and Micro Finance Institutions (MFIs). The company's ears to the ground approach and presence in areas where these NBFCs are active, improves its knowledge and understanding of their business and prospects. With its customer-centric approach, AU Small Finance Bank is well prepared to serve these financial institutions at various stages in their business cycles.

The company cater to diverse asset categories with a substantial proportion to asset finance companies (~58%) in this segment. The company's book has a granular spread across 150+ customers. Over 92% of its lending is Term Loans (mostly for two years and above). With a stringent verification process, the company verify quality of underwriting, assets, governance practices, capital, balance sheet strength and promoter involvement before disbursing the loans. The company start with small ticket size loans and gradually build upon it, after examining the business across various parameters. In recent years, AU Small Finance Bank has implemented stricter standards in asset provisioning at 1% against a requirement of 0.4%. The company's exposure remains largely to small and mid-size customers with higher capital adequacy and with limited dependence on capital market borrowings.

With a cautious approach on NBFC sector, gross AUMs for this business decreased by 26% from ` 2,511 crore on 31st March 2019 to ` 1,856 crore as on 31st March 2020. Lending disbursements declined by 61% Y-o-Y to ` 940 crore in FY 2019‑20.

Agri - SME loans

Agri banking aims to meet the comprehensive requirement of all the stakeholders engaged in the agri value chain. Product Offerings are similar to SBL‑SME loans wherein AU Small Finance Bank has a dedicated team to serve the term loan, and working capital requirements of the entities involved in agriculture and allied value chain like food and agri processing units, warehouses/cold storages, fertilisers/seeds/pesticides wholesalers and retailers. Loans are also provided for construction, acquisition, renovation and carrying out machinery or equipment upgradation. AU Small Finance Bank has a greater focus on customer segments in non-urban areas, where the company can leverage its distribution network.

Gross AUMs for its agri business loans increased by 23% Y-o-Y from ` 984 crore on 31st March 2019 to ` 1,213 crore as on 31st March 2020, while disbursements grew 19% to ` 608 crore during the year.

Real estate group (REG)

The company cater to the credit needs of small builders, who operate in the affordable housing segment or who develop small projects (majorly one or two tower projects) having completion period of 24 months to 36 months. In this vertical, the company primarily cater to projects with last-mile funding towards project completion or payment of statutory approval cost.

The company follow a strict and very selective sourcing model largely focused on near completion projects with fast-moving small units. AU Small Finance Bank has internally developed an online tool for project monitoring, including No Objection Certificate (NOC) issuance and escrow management, and closely supervise timely action for key monitorables like cost overrun, time overrun and slow-moving inventory.

Gross AUMs for this segment’s lending business increased marginally by 3% from ` 801 crore as on 31st March 2019 to ` 826 crore as on 31st March 2020; disbursements in FY 2019-20 declined by 8% at ` 406 crore versus ` 440 crore in FY 2018‑19.

Liabilities and branch banking

As on 31st March 2020, the company had 647 touchpoints, which comprised 406 bank branches, 122 banking outlets, 88 business correspondents, 31 asset centers, 13 offices and 356 ATMs (including TATA Indicash ATMs) across 11 states and one Union Territory.

The company aim to address all the banking requirements of its customers as individuals as well as business owners.

Through branch banking, the company provide savings, investments, insurance, payment solutions, and loan products such as auto loans, home loans, personal loans, OD against FD, CD loans and gold loans to individuals.

For transactions and investments, the company offer Current Account, Savings Account (SA), Term Deposits and Recurring Deposits. AU Small Finance Bank is focused on building a granular retail deposit base. AU Small Finance Bank is quite competitive in terms of pricing and product features, as well as service intensity vis-à-vis private sector banks. The share of CASA + Retail term deposits has been steadily increasing and stood at 43% in end-FY 2019-20 as against 39% in end-FY 2018-19. The company constantly improvise based on its learnings and customers’ needs. In December 2019, the company launched AU Royale, a premium savings account targeting high-value customers with best-in-class features. The product has seen significant traction in the three months since its launch in December 2019, and AU Small Finance Bank has acquired 4,701 New-to-Bank customers, and a total of 11,120 customers including upgrades of Existing-to-Bank account holders with an overall ATS of ` 10.5 lakh.

The company provide a mix of investment and insurance products to its customers. During FY 2019-20, the company sourced 82,508 life insurance policies, 3,74,332 general insurance policies and 48,325 health insurance policies. AU Small Finance Bank has 5575 active SIPs, and the company also opened 5,777 3-in-1 accounts in a tie up with Motilal Oswal Financial Services. During FY 2019‑20, the company earned ` 41 crore of cross‑sell fee vis‑à‑vis ` 35 crore in FY 2018‑19.

Digital banking

Digital banking services are an essential part of its strategy to enhance customer satisfaction, and as a young, agile bank the company continuously invest in its digital banking franchise. The company's key digital offerings include an instant Savings Account, two‑wheeler and consumer finance loan. Instant Savings Account

The company's new-age instant Savings Account, AU ABHI, can be opened by just downloading the AU ABHI App and registering with the Aadhaar number, PAN and other minimal details.

Consumer finance loans

The company's paperless digital consumer finance loans are processed digitally either by sales personnel at the point of sale or by customers themselves, thereby reducing operational processes and costs.

The company offer consumer durable loans in partnership with a leading digital platform, which offers cashless Equal Monthly Instalment (EMI) options to customers purchasing consumer durables from various online retailers. Consumer finance loan disbursements through its digital platform grew from ` 6 crore to ` 43 crore in FY 2019‑20.

Treasury management

The treasury function at the bank is primarily responsible for its Asset Liability Management (ALM); effective fund planning and positioning; day-to-day liquidity and fund management; managing statutory reserves in adherence to the statutory guidelines and judiciously managing investments and trading portfolio according to regulatory and internal policy frameworks. In addition, risk management is a key focus for it whereby market risk, ALM risk, interest rate risk and liquidity related risks are effectively monitored and managed. The treasury, along with Financial Institutions Group (FIG) maintains a close interface with financial markets and participants for augmentation of counter-party lines for its balance sheet management.

Liquidity, interest rate and ALM management

AU Small Finance Bank is maintaining sufficient liquidity and contingency buffer in the wake of volatile markets, which are invested in High Quality Liquid Assets in the form of excess SLR and high-quality Debt Capital Market instruments (G-Sec/T-Bills and AAA/AA+ Non SLR instruments) and can be readily used for repo or liquidated in secondary market. AU Small Finance Bank has strengthened and diversified its liquidity profile in view of additional regulatory requirements through a judicious mix of deposit mobilisation (CASA, Retail Deposit and Bulk Deposit) and rupee borrowing in the form of CDs, Term Money, securitisation of portfolio, and re‑finance from various domestic financial institutions (NABARD, SIDBI, MUDRA and others) to optimise cost and manage the ALM profile. During the year, high‑cost grandfather borrowing in the form of Term Loans and NCDs were substituted with low-cost deposits and market borrowings.

Indian banking industry

For the near-term including FY 2020-21, recovery is expected to be gradual and is likely to be significantly influenced by the trajectory of COVID‑19, and the growth outlook for the Indian Economy which is bleak for FY2021.3

The Indian banking industry faced multiple challenges through the year – a slowing macro, adverse events related to specific financial institutions, which threatened the overall stability of the financial system, fresh sources of corporate stress, and the more recent jolt from the COVID-19 pandemic.

Policy responses to the challenges mentioned above led to key measures in banking regulations to boost growth, better financial system stability, and improve monetary policy transmission. Some notable measures with a more durable impact, in its view, include 1) reducing risk weights for retail loans (excluding credit card loans) from 125% to 100%, 2) making it mandatory for banks to link all new floating rate personal or retail loans, and floating rate loans to Micro, Small and Medium Enterprises (MSMEs) to an external benchmark, 3) introducing Liquidity Coverage Ratio (LCR) requirements for NBFCs, 4) increasing the deposit insurance amount from ` 1 lakh to ` 5 lakh. To tackle more near‑term challenges, several measures such as temporary and partial exemption of CRR requirements, relaxation of Non-Performing Loans (NPL) recognition in MSME and real estate sectors, and Long-Term Repo Operation (LTROs) were implemented. Moreover, restructuring of a private bank and the Reserve Bank of India’s (RBI’s) regular reiteration on safety of deposits with private sector banks, were other notable initiatives.

These measures notwithstanding, the credit growth of scheduled commercial banks declined to 6.4% in March 2020 as against 13.1% in March 2019 as non retail growth remained lacklustre and retail lending remained the key driver.

However, if the company look closer into banking system credit growth trends, the company observe that credit growth was significantly muted in metros and urban (partly due to deceleration in corporate credit), while semi-urban and rural grew at a faster clip. Similarly, even though the progress of the banking system has been anaemic, private banks (including SFBs), continued to gain market share and grow in double digits. Further, the upcoming PSU banks consolidation could create more opportunities for market share gains by private banks.

Following the outbreak of COVID-19 and the ensuing lockdown, the Reserve Bank of India (RBI) came with several measures including – repo rate cut by 75bps, widening of the policy rate corridor, liquidity infusion, and providing regulatory forbearance. Further, it announced a three-month repayment moratorium for all outstanding term loans, as on 29th February 2020. A deferment of interest to be paid on outstanding working capital loans (cash-credit/overdraft) as on 29th February 2020 for three months, was also announced. Further, for moratorium granted for overdue term loans and working capital, facilities which were overdue but standard as on 29th February, the moratorium period shall be excluded by lending institutions from the number of days for the purpose of asset classification under the Income Recognition and Asset Classification Norms (IRAC norms). These should significantly alleviate pressures of borrowers, whose repayment ability could be impaired by the lockdown. Overall, RBI's measures including those relating to Targeted Long Term Repo Operations (TLTROs), CRR and Marginal Standing Facility (MSF) will inject total liquidity of over ` 3.5 trillion into the system. The CRR cut will also marginally help bank profitability.

On the fiscal side, the Indian government announced several welfare measures including cash transfers, measures on food security, free cooking gas to the poor, and insurance cover of ` 50 lakh to healthcare workers. Going forward, more fiscal measures are likely to be announced depending on how the situation evolves.


Given the macro uncertainties, RBI abstained from providing any GDP growth estimates for FY 20-21 in its March 2020 monetary policy announcement. Overall, the outlook for FY 2020-21 remains uncertain as the full extent of the COVID-19 impact is yet to be ascertained.

The company believe the government’s 21-day country-wide lockdown imposition was an assessed step. Further, in its view, the responsibility of fighting the pandemic and mitigating its fallout should be collectively shared by everyone, including corporates, banks, Financial Institutions (FIs) under the guidance of the RBI and the Government of India, to avoid any long-term negative impact on the Indian economy.

Small Finance Banks

Small Finance Banks (SFBs) had been introduced by the RBI with the intent of driving financial inclusion for the unbanked and under-banked sections of the economy. In their three years of existence, SFBs have made their presence felt, growing their market share in both loans and deposits.

The company believe these early trends are encouraging and further testimony to the significant untapped opportunities in the informal/semi‑formal sectors, and efficacy of this delivery model for financial services for the underserved segments. This is further vindicated by the fact that RBI introduced on-tap licensing guidelines for SFBs during FY 2019-20.

In terms of outlook, the company believe there remains significant scope for growth in several underserved segments. Further, as branches mature and visibility for the SFBs improves, benefits from improving operating leverage will improve core profitability, going ahead.

Growth trajectory for SFBs

SFBs have been gaining market share in loans and grew at a CAGR of 26% from FY 2015-16 to FY 2018-19, and should continue to gain the market share in the medium term. Notably, share of top three SFBs (AU Bank being one of them) increased between FY 2015-16 to FY 2018-19 within total SFB AUM as they recorded a CAGR of 34% for the period.

Performance of key sectors

Wheels loans

India is one of the largest automobile markets in the world. The sector contributes about 7.5% of India’s GDP and employs, directly and indirectly, ~3.7 crore people, while continuing to present a significant opportunity for financiers.

The vehicle loans market stood at ` 4.4 trillion, growing at 10.3% Y-o-Y as on 30th September 2019, though origination volumes and balances declined on the back of tepid demand. Despite the ongoing slowdown in vehicle sales, the structural growth outlook remains intact as vehicle sales are likely to benefit from relatively low car penetration, emerging demographic dividend, increasing urbanisation and nuclearisation, rising incomes levels, and consumption.

Furthermore, opportunities are opening up as the industry evolves. In recent years, the vehicle financing business has expanded beyond the traditional core segment of new vehicles to the used vehicles and refinance as well. This has been driven by increasing formalisation in the used car space and deeper and wider proliferation of credit bureau scores. In the past few years, AU Small Finance Bank has witnessed a significant roll out of new ‘used vehicle’ dealerships by Original Equipment Manufacturers (OEMs), emergence of well‑funded online used car dealers offering certification, and ease of registration transfer and financing.

The sharp decline partly reflects the impact of demand moderation (exacerbated by the outbreak of COVID in March 2020), liquidity crunch for some lenders, and inventory de-stocking by dealers on the back of transition to BS-VI.

It is expected that post COVID-19 lockdown there could be an increase in demand for vehicles arising from preference for personal mobility versus public transport. Besides this, factors like favourable demographics with a growing middle class and young population, improved road infrastructure, Goods and Services Tax (GST) implementation paving the way for bigger warehouses, increased e-tailing, last-mile delivery opportunities and pent-up demand following migration to newer emission standards, will continue to drive growth for this segment.

With reference to the medium-term estimates mentioned above, it is important to note that they may be revised downward as they were forecasted prior to the COVID-19 outbreak. However, structural growth drivers (which include relatively low penetration of vehicle ownership, favourable demographics, and increasing disposable income) remain intact and should play out in the medium to long term.

Used Vehicles – Cars

The Indian used car market was valued at USD 24.2 billion in 2019, with the pre-owned car market rapidly evolving in recent years. As per the Indian Blue book, it crossed the 4-million-unit mark and stood at 1.2x the size of new car market. The industry has been seeing increased investments across the value chain, from procurement to retail. This has resulted in a shift in market composition where the organised channel of the pre-owned car market almost doubled its share from 10% to 18%, between FY 2010-11 and FY 2018-19.

Banks have significant room to grow in pre‑owned cars segment, which is still at 17% (compared to 75% for new cars). The development of the organised channel for buying used vehicles also bodes well for the banks as buyers who use the organised channel can be offered pre‑approved loans since majority of the transactions are below ` 3 lakh and the ease of finance will encourage buyers to avail loans. MSME lending

Globally, MSMEs are regarded as the engine of equitable economic development, providing large employment opportunities in less developed regions. In India too, MSMEs have been the backbone of the Indian economy. According to the Annual Report of the Ministry of MSME of FY 2018-19, India is home to ~6.34 crore MSMEs (51% are in rural areas and more than 99% of them are categorised as micro), which cumulatively accounted for 30% of nominal GDP. These MSMEs together employ ~11.1 crore people with micro enterprises accounting for 97% of the total employment in the MSME sector.


Most of the MSMEs in India are informal in nature, which makes accessing finance a challenge for them partly due to their lack of comprehensive documentation for income proof and collaterals, perceived higher risk of the segment and higher cost of delivering services from the perspective of mainstream banks. Besides, the MSMEs’ informal set up also does not make it easy for them to avail government schemes, which are based on digital infrastructure and require beneficiaries to have some form of digital presence.

Access to credit and opportunities for AU Bank The growth outlook for this segment is quite encouraging due to the size of the opportunity and several reforms such as implementation of GST, extension of the credit guarantee fund scheme to NBFCs and lower tax rates, which will incentivise lenders and improve transparency. These and several other focused initiatives aim to increase the sector’s contribution to GDP to over 50% as the nation aspires to be a ` 5 trillion economy. The opportunity size for financiers is significant – an IFC study (November 2018) pegs the addressable credit gap at ` 25.8 lakh crore, which is more than 2.5x the current size of formal credit to this sector, with the bulk of it in the micro and small segments.

Private banks have been growing the fastest in this segment in recent years, and of late have been gaining market share from PSU banks and NBFCs alike. AU Bank has emerged as one of the leading lenders to MSMEs since 2009 and is perceived as a trusted solution provider to the sector with strong track record in maintaining asset quality while scaling up. With average ticket size around ` 10‑12 lakh, AU Bank has catered to only 0.11 million units as on date and has a long runway for growth in this segment.

Housing loans

Of India’s 130 crore+ population, rural population constitutes over 60%, where there is a massive shortage of housingand further, rapid urbanisation is also increasing the demand for housing in urban areas.

The housing mortgage market, particularly the affordable housing segment, has received significant regulatory support, in terms of lower risk weights, tax exemptions, interest subventions, and incentives for developers. The Government of India has taken several measures to address this gap. Under the ‘Housing for All’ scheme, 60 million houses are to be built—40 million in rural areas and 20 million in urban areas by 2022—which will provide significant demand growth for the housing finance industry.

Overall, the mortgage market in India is relatively under‑penetrated compared to peers (see figure below). According to industry estimates, India’s mortgage penetration stood at ~10% and is expected to reach to 14% by FY 2021-22.

Despite the strong impetus by policymakers and the significant size of the opportunity, credit growth in home loan (including affordable housing) continued to decelerate as aspiring buyers deferred their purchase decisions given the slowing macro, and broadly stagnant housing prices. As a result, origination volumes and balances continued to decline, while delinquencies recorded a slight increase. As of Q2 FY20, housing loans stood at ` 19.1 trillion (~50% of consumer credit), with growth decelerating to 10% Y-o-Y from 20% in Q2 FY19. Notably, private banks have increased their market share in recent quarters and have increased focus on affordable housing. Balances originated by private banks from the affordable segment increased 14% Y-o-Y in Q2 FY20. Also, of the total volumes originated by private banks in Q2 FY20, 63.5% were from the affordable housing segment, up from 59.3% in Q2 FY19.

At AU Bank, the housing loans segment has been one of its focus areas and was re-launched in Q4 of 2018. Through its housing loan offering, the company aim to help its customers in building/buying probably the most valuable and cherished asset in their lifespan, and onboard their entire family with it.

Gold loans

Gold loans are typically small ticket, short tenor loans, which offer the convenience of quick disbursals during times of emergency or meeting short‑term cash flow mismatches. As of March 2019, the gold finance industry AUM recorded a growth of ~13% Y-o-Y and stood at ` 2.8 trillion. As per industry reports, the gold loan market is further expected to grow at a CAGR of ~10% to ` 3.8 trillion by FY 2021‑22. India is the world’s largest consumer of gold jewellery and holds a stock over 20,000 tonnes of gold valued at over USD 800 billion with rural India holding ~65% of it. Although gold has been one of the oldest forms of collaterals for loans, the organised gold loan segment still has low penetration. Informal and unregulated players, including local money lenders, control ~ 60% of all gold loan transactions and typically charge usurious interest rates due to the lack of formal financing channels.

However, technological advancements are giving new-age banks such as it, the ability to improve accessibility and offer tailored schemes with flexible tenors. The company's gold loan product was rolled out ~ 2.5 years back and has been performing well. The company's experience so far has given it more confidence in its ability to scale up in this segment and the company will be investing in it further and making it a significant revenue stream in the next three to five years.

Consumer durable loans

Growing awareness, easier access, and changing lifestyles and mindset (perception of some consumer durables as a need rather than a luxury, for instance) are likely to be the key growth drivers for the consumer durables market. In rural/semi‑urban areas, there is significant scope for growth of consumer durables with consumption expected to grow in these areas as penetration of brands increases. Also, demand for durables like refrigerators as well as consumer electronic goods are likely to witness growing demand in the coming years in the rural markets as the government plans to invest significantly in rural housing and electrification.

A consumer durable loan gives an opportunity to the customers to buy consumer durables and electronics like refrigerators, washing machines, TVs, smart phones and others at an affordable instalment plan. The consumer durable loan segment has been seeing increasing interest by mainstream banks. The government and the banking industry’s continued push for digitisation, as well as a higher financial inclusion, augur well for consumer durable loan growth in the near to medium term. This product offering helps it leverage its reach and relationships to capitalise on this trend. Further, it helps its offering to be more comprehensive and meet its customer’s evolving needs.

Financial Highlights

May 2, 2020 AU Small Finance Bank Limited announced  financial results for quarter and year ended March 31, 20204


  • Amidst challenging macro, Disbursements for full year FY 2019-20 rose ~16% over FY 2018-19 led by ~27% growth in retail disbursements, offset by a de-growth in NBFC book during FY2019-20. Non-Fund based disbursements at ₹917 Crore grew by ~155%. Amongst new products, Home Loan continues to gain stronger traction.
  • Loan Assets Under Management (AUM) increased by ~27% y-o-y from ₹24,246 Crore to ₹30,893 Crore driven primarily by bank’s continued focus on growing Retail AUM, Up ~38% Y-o-Y. Share of Retail AUM further consolidates to 84%. ~98% AUM Secured.
  • Aggregate Deposits grew 35% Y-o-Y; stood at ₹26,164 Crore as on Mar’20. Deposits grew ~10% over Dec’19 quarter. Retail deposits now 43%.
  • As at 31st March 2020, Gross NPA decreased by ~30 bps to 1.7% and Net NPA decreased by ~50 bps to ~0.8%, vis-à-vis 2.0% and 1.3% as on 31st March 2019.
  • COVID-19 provisioning of ₹ 138 Crore created in Q4FY20 other than Standard Asset and NPA provisioning.
  • Total CRAR at ~22.0% and Tier-I CRAR of ~18.4%; Well above minimum regulatory requirements of 15% and 7.5%.


  • Net Interest Income increased by 42% from ₹ 1,343 Crore in FY 2018-19 to ₹ 1,909 Crore in FY 2019-20 driven by healthy AUM growth of ~27%.
  • Yield for FY 2019-20, disbursement yield increased by 124 bps to ~15.4%. Full-year AUM Yield was at 14.7% (up by ~40 bps).
  • For FY2019-20, its overall average cost of funds improved by ~20 basis points to 7.7%.
  • Correspondingly full year spreads improved by ~60 bps Y-o-Y.
  • Other Income (excluding gains on partial divestment of shares of Aavas Financiers Ltd.) grew from ₹ 462 Crore to ₹ 620 Crore; up by 34%.
  • Driven by operating leverage, its Cost-to-Income ratio declined to 56.1% in FY 2019-20 from 60.0% in FY 2018-19.
  • FY20 PAT (excluding gains on partial divestment of shares of Aavas Financiers Ltd.) grew by 56% to ₹ 596 Crore from ₹382 Crore in FY19, driven by robust growth, cost improvement and stable asset quality. PAT including gains on partial divestment of shares of Aavas Financiers Ltd. grew 77% to ₹ 675 Crore.
  • FY2019-20 Return on Average Assets (RoAA) clocked an improvement of ~11 bps to ~1.6% from 1.5% in FY 2018-19.
  • Return on Average Equity (RoAE) for FY2019-20 came in at ~15.8% vis-à-vis 14.0% in FY2018-19.


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Created by Asif Farooqui on 2020/07/20 11:47
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