AU Small Finance Bank Ltd Q2 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Renish Bhuva - ICICI Securities Limited - Analyst : Congrats on a good set of numbers. Just two questions. First, on the margin. So here, we were guiding at around 5.7%, 5.8%, and now we are guiding at 6%. So how confident we are about sustaining yields and cost of funds at current level especially if there is no rate cut until March '24, I mean, sorry, March '25.

Question: Renish Bhuva - ICICI Securities Limited - Analyst : And secondly, sir, on this RBI circular on sort of revisiting the flow to charges on micro and customers. So what is our early assessment? And because seeing one of the slides, we did mention that we have increased sort of fees on lending and deposits. So if, let's say, this cartel has to come with some I don't know, modification or observations whatever -- what is the impact we should have? Or is there any impact at all.

Question: Kunal Shah - Citi - Analyst : And the team. So first question, when we look at it in terms of the provisioning, so it seems like incremental delta is not much flowing in from MFI, but particularly from credit cards plus as well as the secured retail when we look at 1.15% to 1.2% and the awaited credit cost out there. So you indicated that secure should come back. Is it like the catch-up in the MFI which will offset the improvement in the secured and commercial banking. And that's the reason we are still continuing with that guidance of 1.28% PAT costs. And does it include contingency buffer?

Question: Kunal Shah - Citi - Analyst : And secondly, on LCR, now down to almost 112% odd, no doubt, it's indicated that you carry sufficient high-quality liquidate non-SLR investments. But how should we look at it given the draft LCR circular also being there? And how would we tend to improve this LCR ratios going forward here? So what are the initiatives which we would be --

Question: Nitin Aggarwal - Motilal Oswal Securities Ltd. - Analyst : A few questions. One is like around the same on the credit cost, we are guiding to which, again, to be a similar number as on credit cost. So is it more out of conservatism? Or are we expecting 3Q to be like worse off than 2Q? Because 4Q typically is the strongest for us.

Question: Nitin Aggarwal - Motilal Oswal Securities Ltd. - Analyst : and the other question is, I think the slippages during the quarter has gone up sharply Q-on-Q. So what is the mix of this? Like if you look at between secured and unsecured assets some color around. Unidentified Company Representative Deepak Jain this side. So from the unsecured side, the slippages came around 33% out of the total slippage during this quarter. That is from the secured side. The unsecured is mainly constitute of credit card and personal loans.

Question: Nitin Aggarwal - Motilal Oswal Securities Ltd. - Analyst : Got it. And how will this number be in that, say, go to somewhere in the first quarter, 33% of the cured conservation now. Unidentified Company Representative This was around 25%.

Question: Rohan Mandora - Equirus Securities - Analyst : And this is on OpEx. So like in your opening comments, you mentioned that there was 11% higher disbursement sequentially, but employee cost was similar. So just wanted to understand, is there a change in the payout structure or origination mechanism? And also, when the cost is contained sequentially or the expectation of an improvement in this -- is there a reduction in spend on tech or branding or any of these kind of one-off nonbusiness some color around that? And secondly, incremental disbursement spend spreads are down 80 bps point Q-on-Q. So how should one look at it going ahead in the second half of this is on account of lower disbursements on MFI, but just your view here? And thirdly, if you can give MFI collection efficiency for the quarter or do you book in MFI?

Question: Rohan Mandora - Equirus Securities - Analyst : Sure. And on the OpEx revert that you have given, sir, just on the employee piece you didn't touch upon like disbursements were up. So is it that the incentives are deferred to 3Q? Or what has happened there?

Question: Nidhesh Jain - Investec Bank (UK) PLC - Analyst : Firstly, on the credit card business, what is the strategy from here onward? I couldn't understand that we will go more digital -- is it sourcing digitally? Or how are you thinking about trade for card business from here onwards?

Question: Nidhesh Jain - Investec Bank (UK) PLC - Analyst : Second, on micro finance, in H1, our credit cost was around 3%, right?

Question: Nidhesh Jain - Investec Bank (UK) PLC - Analyst : And any guidance on the full year credit cost on microfinance?

Question: Abhishek Murarka - HSBC - Analyst : So the first one is on cards. If I look at the yields, clearly, QoQ, that has gone up from 13.8% to 14.3%. Since the book is stable, is it mostly because transactor balances, et cetera, are reducing and the mix is changing more towards revolver EMI. Is that how it is evolving? And since you will take about a couple of quarters to recover from -- or to get a plan in place basically, this book should just keep fighting from here on?

Question: Abhishek Murarka - HSBC - Analyst : Right. And given that a large part of your book is greater than 760 score and then nearly 90% is 740 plus, which is a reasonably good score. So where do you see most of the credit cost actually coming from? And since you said that you are learning from your previous underwriting using digital means, can you give some sense of where things went wrong and what you need to correct now?