AU Small Finance stock slips 4% despite robust Q2 earnings
The bank’s focus is to keep the cost/income ratio around 60% going forward, and the management remains focused on mobilizing retail deposits and managing its margins
The stock of AU Small Finance Bank Ltd fell 4.15% intraday on the National Stock Exchange (NSE) on Wednesday even as the lender reported a decent set of numbers for Q2FY23 earnings performance. The bank’s gross advances rose 44% year on year (y-o-y), aided by commercial banking and home-loan business.
Deposits improved 49% y-o-y with a good traction in CASA deposits. CASA ratio improved to 42% from 30% in same quarter in previous fiscal. Further the bank’s net interest income (NII) increased by 44% y-o-y and net interest margin (NIM) expanded by 30 basis point sequentially to 6.2% during the quarter. One basis point is 0.01%.
On the flipside, its slippages remain elevated at ₹262 crore. Also, its operating expenses were elevated as they grew by 51% y-o-y. Increase in operating expenses was partially due to elevated employee expenses. The management indicated that employee appraisals were done in 2QFY23, which led to higher employee costs, while digital investments kept other expenses elevated. Cost to income ratio stood at 62.5% in the current quarter.
“AUBANK’s continued investments in franchise building activities to prepare itself as a future-ready bank is keeping cost ratios under pressure,” said analysts at HDFC Securities Ltd. In a post earnings call with the analysts, the bank’s management said, its focus is to keep the cost/income ratio around 60% going forward.
Meanwhile, the management remains focused on mobilizing retail deposits and managing its margins. However, it remains cognizant of macro-disruptions and would be watchful of growth. The management expects NIMs to sustain in the 5.8-6% range, going ahead.
Note that the bank awaits guidelines from the Reserve Bank of India for applying for a universal banking licence.
According to analysts at Emkay Global Financial Services Ltd, it would be prudent for the bank to further strengthen its risk/compliance architecture before its planned transition into becoming a universal bank.
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