AU Small Finance Bank Ltd Q3 2025 Earnings Call Transcript

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

Question: Kunal Shah - Citi - Analyst : Friends, particularly on the MFI side as well as PL and credit card, where we are in terms of the cycle? And you indicated in terms of, say, improving collection efficiency. But at the same point in time, we have almost like 4.4% in SMA as well as 17% of loans, wherein there are more than three lenders. So even during the transitioning, that could have an impact. So what is the -- maybe the extent of -- if you can just help in terms of understanding what could be the extent of the [gain] that has to be further recognized, and how you have beefed up the collections out there?

Question: Kunal Shah - Citi - Analyst : Sure. And in terms of the numbers, so as you indicated, 6% credit cost for the full year. So that clearly suggests 8% to 10% in MFI continuing. Same way on credit card, if we look at it like still being more than 10%-odd for this quarter, so would that run rate also be still there, maybe getting forward? So are we like yes to --

Question: Kunal Shah - Citi - Analyst : Okay. In 4Q also, this will continue?

Question: Kunal Shah - Citi - Analyst : Sure. Got it. Okay, yeah. Thanks, and all the best, team.

Question: Rohan Mandora - Equirus Securities Pvt. Ltd. - Analyst : Good evening, sir. Thanks for the opportunity. I just want to understand what's the provision that we are currently carrying on the MFI, SMA book? That's one. And second, the OpEx control that we are seeing on account of merger synergies, how should one think on that for FY26? And related question was that we have given a slide wherein we are talking about the addition of touchpoints across products, across geographies in next year. So how should one look at the interplay between OpEx on these two things? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 24, 2025 / 12:00PM, AUFI.NS - Q3 2025 AU Small Finance Bank Ltd Earnings Call

Question: Rohan Mandora - Equirus Securities Pvt. Ltd. - Analyst : Sure. Just on that (multiple speakers) --

Question: Rohan Mandora - Equirus Securities Pvt. Ltd. - Analyst : Yeah. Just on the synergy piece, see, if I look at the quarterly run rate in the first three quarters, we have been holding around that INR14.7 billion, INR14.3 billion kind of run rate. And we have been gaining some benefits. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 24, 2025 / 12:00PM, AUFI.NS - Q3 2025 AU Small Finance Bank Ltd Earnings Call So just into next year, what kind of a cost escalation will we see in the core business? Or how should we look at -- with the synergy benefit, how should that move into FY26? That's what I was trying to understand on the OpEx part.

Question: Rohan Mandora - Equirus Securities Pvt. Ltd. - Analyst : Sure, thanks.

Question: Sameer Bhise - JM Financial Institutional Securities Limited - Analyst : Yeah, hi. Thanks for the opportunity. I have a couple of questions. I mean, I understand we are banking on the secured side of the book to kind of do well incrementally as well. But if I see, there is some minor changes on asset quality there sequentially on a growing book. So how confident are we that 4Q could actually be better? While I understand it is seasonal, but just wanted some confidence around that. And then I'll come back with a follow-up question.

Question: Sameer Bhise - JM Financial Institutional Securities Limited - Analyst : Thank you. That's helpful. Just wanted to get a sense because it's quite a fluid situation in the segment that we operate. (multiple speakers) --

Question: Sameer Bhise - JM Financial Institutional Securities Limited - Analyst : Precisely, that's why I asked that it sticks to the playbook. Secondly, on OpEx, now obviously, if we enter this kind of an economic environment, you would want to invest more on collections. How are we positioned there, especially in some of the core categories? Are you investing more on that? And how does that kind of drive overall OpEx numbers? I reckon Sanjay-ji just mentioned that this year would be upwards of 58%. So just wanted to -- if you could sharpen a bit on that front. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 24, 2025 / 12:00PM, AUFI.NS - Q3 2025 AU Small Finance Bank Ltd Earnings Call

Question: Sameer Bhise - JM Financial Institutional Securities Limited - Analyst : Sure. (inaudible) thank you, and all the best.

Question: Madhuchanda Dey - MC Pro - Analyst : Hi, good evening. I have two questions. So the first question is a little long term. See, you have had an excellent track record with what you understand best, which is secured assets. So with Fincare, you've got the MFI principally, and that met with the sectoral headwinds. And then you yourself admitted that your experience with credit card, the way you have done the business, has not been that great. So going forward, will it make you recalibrate your strategy with respect to lending? You will kind of stick to that -- what you understand best, which is secured. And in that context, how would you like to revise or give a road map of your aspired ROA of 2%?

Question: Madhuchanda Dey - MC Pro - Analyst : And on you -- sorry, on your guidance of the ROA, when do you see that --?

Question: Madhuchanda Dey - MC Pro - Analyst : I have another question, if you may allow. This is not your bank specific. So this is my -- this is -- I mean, I am picking your expertise on this. Like every other player in the industry, whoever who was lending to MFI, they are fast withdrawing from that market, right? So how do you see this crisis ending? And we are getting kind of confusing guidance. Someone is saying, wait for one more quarter. Someone is saying, wait for two more quarters. Someone is saying three more quarters. What is the basis of saying that wait for two more quarters? What is that is likely to change in the ground for you to say that this is like the peak of the crisis from here on --?

Question: Madhuchanda Dey - MC Pro - Analyst : Yeah, I want your house comment basically.

Question: Madhuchanda Dey - MC Pro - Analyst : Thanks a lot, and all the best.

Question: Madhuchanda Dey - MC Pro - Analyst : So is it realistic to assume that by the second quarter of FY26, we would again be somewhat in a much better frame as far as MFI is concerned?

Question: Madhuchanda Dey - MC Pro - Analyst : Thank you. That's really helpful.

Question: Prakhar Agarwal - Elara Securities Pvt Ltd - Analyst : Yeah, hi. Thanks for the opportunity. Just two -- three questions based on the outlook that you have given. First, in terms of growth outlook that you have essentially brought down to around 20% from 25% within a quarter. And this time around, we have mentioned that secured will be around 23% to 25%. And essentially, looking at the mix, unsecured is only 10%. So have we lowered our growth in secured segments as well? Or how is the math working around from 25% to 20% growth guidance cut in one quarter that we have done?

Question: Prakhar Agarwal - Elara Securities Pvt Ltd - Analyst : Okay. Just two more things on this. Just a follow-up on this as well. So the other guidance that we have said is in funding cost, which wherein we have said that it will now be around 7.10% to 7.15%. What has changed in the quarter in our favor to have seen these sort of benefits? Because the system seems to be struggling in managing that funding cost. And we are essentially going out and saying that we have lowered our guidance for funding costs. What exactly has played out in our favor?

Question: Prakhar Agarwal - Elara Securities Pvt Ltd - Analyst : Got it. And just one last question. We earlier gave a slide wherein we mentioned in last quarter guidance for March '27. We seem to have not given this this time. Has those guidelines still remains, or we have chosen to withdraw that as we speak? And lastly, on this deposit, we seem to have also not given deposit growth guidance for this time for FY25, which probably we gave last time. So just last two bits on these two.

Question: Prakhar Agarwal - Elara Securities Pvt Ltd - Analyst : That is it from my side. Thank you so much.

Question: Pranuj Shah - J.P. Morgan India Private Limited - Analyst : Hi, sir. Thank you for the opportunity. So two questions. One is, we have clearly seen MFI growth overall slowdown and for good reason. And general feedback from the industry players is that even in FY26, at least, even if the asset quality recovers, growth at an industry level is likely to remain slow. So if we overlay that on your -- in general, assuming a 25% overall growth in FY26, MFI continues to taper off. So does that impact your PSL objectives for '25 and '26 also? And a subsequent question to that, will that impact your overall cost ratios also? Because some of the efficiencies -- like you said, you had with the Fincare merchant in FY25 -- those are unlikely to be present in FY26. Then plus you will also have branch expansion over there. So just something

Question: Pranuj Shah - J.P. Morgan India Private Limited - Analyst : Understood. Thanks, Sanjay, sir. That was very helpful. And second question, Rajeev, sir, just on the MFI book. You have mentioned non-overdue collection efficiency of 98.5% as of the third quarter. Would it be possible to disclose how much this was as of December end? This is the non-overdue part. And even on the flow forward rates in the MFI book from SMA to NPA, are you seeing an improvement there also in December?

Question: Pranuj Shah - J.P. Morgan India Private Limited - Analyst : Got it. Thank you. That is very helpful. That's it from my end. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 24, 2025 / 12:00PM, AUFI.NS - Q3 2025 AU Small Finance Bank Ltd Earnings Call

Question: Ritika Dua - Bandhan AMC Limited - Analyst : Hi, sir. So just one question. In your opening remarks, there was a comment about gold loan business, wherein you were saying that the change in regulation by RBI would help you --

Question: Ritika Dua - Bandhan AMC Limited - Analyst : I'm so sorry. I'm just saying that on the -- in your opening remarks, you made a reference on the gold loan business and how will you go faster there because of a regulatory change. Could you just elaborate on that? That's the only question I have. Thank you.

Question: Ritika Dua - Bandhan AMC Limited - Analyst : Great, sir. Sir, just one clarification on the same. So when you say that for the industry -- and I'm assuming whatever the circular is, it's applicable now for banks and NBFCs combined?

Question: Ritika Dua - Bandhan AMC Limited - Analyst : Okay. Great. And sir, secondly, when the rollovers have to stop, I don't have an exact percentage, what was the percentage which was getting rolled over? But I'm assuming it will be majority. So now does the customer (multiple speakers) --

Question: Ritika Dua - Bandhan AMC Limited - Analyst : So sir, now customer say today, I have a repayment due today. So I'll come and pay my -- the bullet today. So then is it like now the -- there should be a cooling period of (multiple speakers) --?

Question: Ritika Dua - Bandhan AMC Limited - Analyst : Okay. But for the same lender to repay -- to again give the loan to the borrower, I repay you today. And then is there a cooling period, and then I'm eligible to get the --?

Question: Ritika Dua - Bandhan AMC Limited - Analyst : Got it, sir. Thank you so much.

Question: Shailesh Kanani - Centrum Broking Private Limited - Analyst : Thanks for the opportunity, sir. Sir, just wanted to understand our strategy for CGFMU cover. We are increasing the percentage over there, the cover. So where we -- what is the strategy -- how high we are going to go because it will entail some cost as well, right? And have we factored in that?

Question: Shailesh Kanani - Centrum Broking Private Limited - Analyst : So just a follow-up, means as you have highlighted in the past and today as well that Fincare acquisition would kind of strengthen the SMF portfolio. And currently, I think we are going towards -- at least, we highlighted that we might even take 90% CGFMU cover for the MFI business. But as I understand, the CGFMU cover is specifically for non-agri businesses. So can you clarify how these two aspects would align and contribute means (multiple speakers) --?

Question: Shailesh Kanani - Centrum Broking Private Limited - Analyst : Okay (multiple speakers)

Question: Shailesh Kanani - Centrum Broking Private Limited - Analyst : So basically, in nutshell, even the agri business is covered. That is what I wanted to understand. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 24, 2025 / 12:00PM, AUFI.NS - Q3 2025 AU Small Finance Bank Ltd Earnings Call

Question: Shailesh Kanani - Centrum Broking Private Limited - Analyst : Okay. Fair enough. Sir, just last question from my side. Sir, on the wheels front, there has been some --

Question: Shailesh Kanani - Centrum Broking Private Limited - Analyst : No problem, sir. Thanks a lot. Thank you. Best of luck.

Question: Nitin Aggarwal - Motilal Oswal Securities Ltd. - Analyst : Audible now?

Question: Nitin Aggarwal - Motilal Oswal Securities Ltd. - Analyst : Yeah, hi. Good evening, everyone. Firstly, congrats to the entire team on a resilient performance in current environment. I have two questions. First is on the cost income outlook. If I look at a very commendable cost control, that has certainly helped like in delivering rightfully on the profitability front. So while you have given a full-year outlook and -- but how should one look at the forward years? Because earlier, we were looking to do 60% cost income this year, and now that has changed to 57%, 58%. So will this cost income improvement sustain? And will we like improve further in the coming years? Or will we like stagnate here or go up from here? So how should one look at it? That's the first question.

Question: Nitin Aggarwal - Motilal Oswal Securities Ltd. - Analyst : Right. Thanks for that. And second question is, like we have been moving pretty close to our full-year ROA guidance. However, if you look at our on-book PCR ratio has moderated over the year to now 61%. So what are your thoughts on managing this trade-off between the ROA and the PCR? And any particular level that you will wish to maintain for the bank?

Question: Nitin Aggarwal - Motilal Oswal Securities Ltd. - Analyst : Right. Got it. Thank so much, (inaudible), and wish you all the best.