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Banking franchise gaining strength; digital journey being fast-tracked

Key takeaway from AU Small Finance Bank’s (AU) FY21 annual report is the display of business resiliency during challenging times. This is reflected in 38% YoY growth in deposits with 86bps decline in cost of funds and 22% YoY growth in assets with best-in-class asset quality. Further, the bank remained focused on achieving the fastest growth to Rs1trn book size with a client base of >10mn from currently ~2mn.

Journey to become a pan-India retail bank remained on track with AU entering five new states and addition of >5,000 new members to further strengthen and fortify its workforce. It made significant strides towards becoming a tech-led bank (digital opening of >90% of accounts, paperless two-wheeler loans, and launch of AU 0101 super app). Maintain ADD with a revised target price of Rs1,250 (earlier Rs1,140).

* AU 0101- Digital banking app. Taking cognisance of ~750mn smartphone users in India and ~1.2bn people with Aadhaar card, AU launched its digital banking app – AU 0101. This app offers solutions around savings and fixed deposits, credit cards, loans, investments, insurance, bill payments, and other lifestyle solutions such as cab and flight bookings, recharge and tax payments. It also offer multiple channels of digital and contactless banking like video banking, WhatsApp banking, chatbot banking, etc. Further, it rolled out multiple features like video banking, ticket bookings, bill payments, etc. to non-AU bank customers as well. The launch of the super app has driven significant uptick in digital adoption.

* Redefining branch banking. While continuing its focus on building a granular deposit base, AU incrementally focuses on acquiring quality customers (rather than increasing numbers) with greater emphasis on CASA acquisition. Liability focus has shifted from a one-size-fits-all approach to a more segment-based approach. Specific teams have been set up to look after NRI banking, enterprise salary, government banking, current account and TASC relationships to complement other segments. Products like ‘AU Platinum Family Banking’ allows it to target premium customers.

* Affordable housing segment gaining momentum. Post the process stabilisation over past two years, affordable housing gained momentum in FY21 with monthly disbursements reaching Rs1.5bn by Q4FY21-end. AU currently offers affordable housing loans only at 135 locations while its existing overall presence is at ~600 locations.

* Focus on becoming a pan-India bank. In its effort to become a pan-India bank, AU, in FY21, added 37 branches across 15 states and two Union Territories with West Bengal, Uttar Pradesh, Telangana, Odisha and J&K being the newest additions to its rapidly expanding presence. It plans to be present in all the major capital cities by Mar’22 and believes its digital banking journey will be well complemented by the expanded physical footprint.

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