IGI Logo

Reorganises itself into 10 SBUs to ensure sustainability and scalability; insights into three SBUs

AU Small Finance Bank (AU) has always remained ahead in pre-empting future business trends and building capabilities to serve the evolving needs of customers. We derive this view from AU’s past initiatives such as: i) reducing exposure in MHCV segment during FY13-FY14; ii) strategic shift towards used vehicle financing in FY19-FY20 considering slowdown in new vehicle sales; and iii) focus on building a digital platform during FY20-FY21 given the current wave of digitisation. Recognising the massive structural growth opportunity (MSME credit gap of ~Rs26trn), AU has reorganised itself into 10 strategic business units (SBUs) to ensure sustainability and scalability – thereby, once again displaying its ability to think ahead of the curve. We believe the SBU structure will help AU have a differentiated approach in each of its businesses and customer journey, and carve out a niche for itself. As of Jan’22, ~95% of its workforce is already assigned to these verticals and only ~5% are shared resources between horizontals like HR, finance, MIS, etc. With this backdrop, AU hosted an event to discuss its future road map and key strategic priorities for three of the SBUs: i) digital banking, ii) merchant solutions, and iii) credit cards. Detailed takeaways are summarised below.

Sets five technology-led strategic priorities to tap upcoming growth opportunities

The case for reimagining the customer’s entire financial lifecycle is founded on: 1) the increasing formalisation and digitisation of credit (MSME credit gap is of ~Rs26trn), 2) the need for differentiated solutions to evolving credit needs given accelerated adoption of digital payments (only 3% credit card penetration in India), and 3) the continuously expanding customer base (67% of AU’s customers are in the working age group). In order to tap these huge growth opportunities and remain ahead of the curve, AU has articulated five strategic priorities: i) grow retail deposits with best-in-class digital experience; ii) build unsecured lending capability to retain liability customers and acquire new-to-bank customers; iii) develop alternative digital distribution channels, iv) continue to invest in core technology to remain future-ready, and v) drive operating efficiency by automation and end-to-end digital business processes.

Developing unsecured lending capabilities – total unsecured book to remain at 2-3% of total loans. In its 5-year journey as an SFB, AU grasped the importance of customer engagement and building capabilities to improve digital customer acquisition. Rationale behind the foray into unsecured lending is to address changing customer credit needs and improve digital customer acquisition / retention. However, AU has also highlighted that it will pursue a calibrated approach and total unsecured assets would be restricted to 2-3% of total assets over the next 2-3 years. Yields in unsecured book would be >18%.

To Read Complete Report & Disclaimer Click Here

For More ICICI Securities Disclaimer https://www.icicisecurities.com/AboutUs.aspx?About=7

Above views are of the author and not of the website kindly read disclaimer