AU Small Finance Bank Ltd Q4 2025 Earnings Call Transcript

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

Question: Renish Bhuva - ICICI Securities Limited - Analyst : Yeah hi (inaudible). Congrats on a good set of numbers under in this challenging time. So sir, my first question is actually on the NIM, right? So post the 50 basis points of rate cut, we have already seen a large (inaudible) Bank out of rationalizing the SAR rates. So are we not planning to raise in line with the system?

Question: Renish Bhuva - ICICI Securities Limited - Analyst : Okay. So I mean, is it right to assume that we might lose this scenario, I mean, in terms of porting higher rates to sort of accelerate the CASA acquisition rather than rationalizing rates. I mean, is that the strategy?

Question: Renish Bhuva - ICICI Securities Limited - Analyst : Got it. Just a follow-up on that. So maybe cost of fund might not come down, but the 50 basis points of (inaudible) Cuts being eventually in site our poking rate book in near term, right? So broadly, our name should sustain between 5.5% to 6% in FY '26? Or how I should look at it from current develop (inaudible) REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 22, 2025 / 12:00PM, AUFI.NS - Q4 2025 AU Small Finance Bank Ltd Earnings Call

Question: Renish Bhuva - ICICI Securities Limited - Analyst : Got it. Sir, just -- I mean, just a broad calculation. I say 30% of variable book debt reprice it of 50 basis points lower. So we'll have a 13 basis point of impact and we have already cut our SAR rate by 25 basis points. So in a way, we have already declared that. So then ideally, first half '26, there should not be any major new impact. Am I missing anything here Sir? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 22, 2025 / 12:00PM, AUFI.NS - Q4 2025 AU Small Finance Bank Ltd Earnings Call Unidentified Comapny Representative So it's not a direct calculation, Renish. Obviously, there's the impact of the daily averages, right? -- how the portfolio is moving, how the deposit is priced. So we are not -- I mean we have -- as we said in the opening remarks also, we're not putting out a guidance because there are variables. We have told you all the constructs of the NIM right? Now it's up to you for assuming. We'll come back and report to you as we have more data point.

Question: Renish Bhuva - ICICI Securities Limited - Analyst : Sir, what is the corresponding number for this year? Unidentified Comapny Representative [1.3]

Question: Kunal Shah - Citi - Analyst : Yeah, hi. Thanks for taking the question. Firstly, sorry, again, on credit cost front, so when we look at the accelerated provisioning that seems to have been done largely towards the GNPAs and making 100% provisioning on the unsecured. But when we look at it overall in terms of the SMA pool as well as when you indicated that MFIN2.0 (inaudible) Is also getting implemented. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 22, 2025 / 12:00PM, AUFI.NS - Q4 2025 AU Small Finance Bank Ltd Earnings Call And there is a proportion of book which is linked to it. So would that mean that credit cost over the next couple of quarters will still continue to be elevated. I think you made that comment in Q4 post the Q3 earnings on that credit costs will be elevated in MFI for almost like 3-odd quarters. So any change in that guidance post this accelerated provisioning? Unidentified Comapny Representative So Rajiv will ask, Kunal. So the deputy CEO, I think he can comment on this.

Question: Kunal Shah - Citi - Analyst : Got it. So when we look at it for full year, maybe the MFI credit cost was almost 7.75% and credit card was almost 11% and now we know that SMA pool is 3.7%, maybe almost like, say, 70 basis points improvement compared to that but this SMA pool will still flow through. And if we look at maybe the collection efficiency from the SMA bucket, what is the kind of slippage and what is the kind of -- if we have to particularly touch upon these two particular segments, not the overall credit cost, then how would it pan out maybe compared to 7.75% and 11%?

Question: Kunal Shah - Citi - Analyst : Got it. Got it. And one more question if I can squeeze in. Yeah.

Question: Kunal Shah - Citi - Analyst : Yeah. Sir, the other one was on the universal license you indicated that you are in communication with the regulator what is the kind of time line which we can draw. Obviously, now the committee said they are evaluating. So when can we expect the universal bank license?

Question: Kunal Shah - Citi - Analyst : This calendar year. Yeah. Okay.

Question: Piran Engineer - CLSA - Analyst : Congrats on the performance in this turbulent environment. Just two questions from my end. Firstly, out of this INR894 crores slippage this quarter, how much would be from the wheels portfolio? And what was it versus, say, last quarter?

Question: Piran Engineer - CLSA - Analyst : Okay. Okay. And also, just a clarification in the initial comments, opening comments, Gaurav, said it will take one to two years for the credit card franchise to turn around. So, by that, you mean breakeven? Or what exactly did you mean by that?

Question: Pritesh Bumb - DAM Capital Advisors - Analyst : Sir, two, three questions. One is on the bill deposits. What I see as a trend is that we have grown strongly on build deposit despite CD ratio being comfortable. Any strategic intent there?

Question: Pritesh Bumb - DAM Capital Advisors - Analyst : So the follow-up question was on, say, example, REG, you have grown about 16% quarter-on-quarter. It looks like that we've done wholesale borrowing in terms of deposits and we lend to REG where there is slightly lower spread. So I'm just trying to think why would we grow a little higher in some of these businesses where the market is so tight? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 22, 2025 / 12:00PM, AUFI.NS - Q4 2025 AU Small Finance Bank Ltd Earnings Call

Question: Anand Swaminathan - Bank of America - Analyst : I have a couple of questions. The first question, when you get your universal bank license, does this guidance around 2 to 2.5 the system growth still hold. And why I ask this is none of the other uneral banks are growing beyond 20%, 21%. There's no doubt about your capacity to grow. Just wanted to understand will there be any self-imposed limit or regulator is okay with you growing 25%-plus even after becoming a universal bank. And number two, when do you next expect to raise capital? Will this be this financial year or next financial year? I just wanted some clarity on that.

Question: Anand Swaminathan - Bank of America - Analyst : Sure, I got it. Yes. No, thanks, Sanjay. I appreciate the clarification. Just wanted to make it clear, and I think it helps the investor base as well to fully appreciate kind of there are no restrictions in its capacity that is driving growth. And that's why --

Question: Anand Swaminathan - Bank of America - Analyst : Yes. So it will be after usual bank license that's when you will decide that's what you mean.

Question: Anand Swaminathan - Bank of America - Analyst : Okay. Fantastic. Sanjay, just in this context, since you are talking about the macro as well, what is the underground feedback your feelings because you speak the most are on the ground to the business community. The underlying macro in India is weak as well, and there's a lot of uncertainty with global export status, et cetera. What are you hearing from the ground? What is the feedback you're seeing? How do you expect in the business actions to be made in the next few quarters will help us kind of go kind of how things are on the ground?

Question: Nidhesh Jain - Investec Bank (UK) PLC - Analyst : First question is on credit card, but all changes we have made on the credit card in the last 12 months? And when should we start seeing increase in new credit card sourcing?

Question: Nidhesh Jain - Investec Bank (UK) PLC - Analyst : Sure, sir. Second question is just on cost to income. So last year, we have done phenomenal job on cost to income, and probably we would have cut a lot of cost, we would not have invested the way we were investing in the past. So how do you see cost-to-income panning out over from a medium-term perspective? And do you see that when you will get leeway from a P&L, you will start investing for future in terms of branding, et cetera, the way we were doing in the past? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 22, 2025 / 12:00PM, AUFI.NS - Q4 2025 AU Small Finance Bank Ltd Earnings Call

Question: Nitin Aggarwal - Motilal Oswal Securities Ltd - Analyst : I have a few A few questions. Firstly, on the ROA guidance that we have for FY '27. So Santi, you gave this guidance like last year, and we had a very turbulent FY '25, and there will be some impact of new guardrail as you mentioned. So how comfortable do you feel to make this guidance? Do you foresee any risk to this? Or do you think that the risks are evenly poised, so what's your assessment on that?

Question: Nitin Aggarwal - Motilal Oswal Securities Ltd - Analyst : Right. And sir, second question is any color as to what would our LCR be factoring in the -- like a revised LCR guidelines that came in yesterday, I'm asking because AU Bank is relatively lower and so like any benefit on that should be very much.(inaudible)

Question: Rohan Mandora - Equirus Securities Pvt. Ltd - Analyst : Sir, firstly, the 30 basis point Q-on-Q decline in incremental yields that you have seen. So did you have any component of year-end discounts or in the secured business? Or is it purely a function of a change in loan mix? Unidentified Comapny Representative That's only disbursement, right?

Question: Rohan Mandora - Equirus Securities Pvt. Ltd - Analyst : There is obviously some amount of year ending on the secured side. Unidentified Comapny Representative There might be a slight bit element of that, but I think it's largely a function of mix.

Question: Piran Engineer - CLSA - Analyst : Sure. And lastly, on slide 11, the credit cost that we have given segment-wise, what is the denominator used here because if you have to compare it across the last three, four presentations that you've given, how should we look at that number? Unidentified Comapny Representative So, Rohan, everywhere, we have used the gross loan portfolio or the AUM, which you can -- the average of that, the average AUM for the period.

Question: Piran Engineer - CLSA - Analyst : So for FY '25, when you're giving this 11% for credit cards or 75% for MFI. So it would be average of March versus March or December versus March? Just under (inaudible) Unidentified Comapny Representative This is for the full year since this is for the full year. Right? This credit cost is for the full year. So you would have taken the average of all the 12 months.

Question: Piran Engineer - CLSA - Analyst : So a couple of months. So one is at what level will you be comfortable in growing your MFI book in line with your overall loan growth? Because if you're guiding for a 20% to 25% perhaps loan growth, then starting from second half of FY '26, could we see MFI book growth materially pick up for the share to increase from the current 6% level? And also in that context, in FY '26 in particular, how will you look to manage your PSL compliance on SMS and the weaker section? So that's the first question. And second one is that even with you doing CGFM across most of the incremental disbursals -- does that initial guidance that you had said that you would want to maintain a 3% coverage on your overall MFI book still hold or all incremental disposals?

Question: Piran Engineer - CLSA - Analyst : So Britt, just to follow up on that, if you are saying that your overall loan growth remains at 20%, 25% range in I'm assuming gradually goes from 6% to 10%. And you're saying that perhaps after second half, like if you see the systems stabilize, you are not against growing MFI credit card book at a 25%, 30% range also given the system (inaudible)

Question: Piran Engineer - CLSA - Analyst : Okay. Got it. Understood. I don't know PSL requirements, does this provide some complying this year. Unidentified Comapny Representative We are compliant this year. So FY '25, we are good on all our subsegments. As well as on the overall PSL for next financial year, it will be more a function of how the disbursement picked up and how the book behaves.

Question: Rahul Jain - Goldman Sachs. - Analyst : Sanjay and team, I think, congratulations, it's been a tough year for you all. And despite (inaudible) -- just had a few questions. Maybe just to start with the credit cards, the loan loss provision guidance, which you said this is still some residual pain that you'll clean up in the first half. But in this REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 22, 2025 / 12:00PM, AUFI.NS - Q4 2025 AU Small Finance Bank Ltd Earnings Call quarter, you already made 150% sorry, INR150 crores of provisions. So how much more is less -- I mean if you can just share some more color on SMA-1 book in the credit card space. So that's one. Second is I have another question on NIMs, but let's just discuss this first before I move to the second question.

Question: Rahul Jain - Goldman Sachs. - Analyst : So the first half would mainly be any elevated credit costs that might be there would mainly be because of the MFI and lower recoveries in your secured retail asset business, which is seasonal in nature. Is that a fair assumption?

Question: Rahul Jain - Goldman Sachs. - Analyst : Got it. Makes sense. And according to the slippages that we had in this quarter, can we say that we are now at the peak, and therefore, the was is behind us. And even in the first half itself, we should start seeing the improvement because the collection efficiency in the MFI business has almost normalized as shown in the presentation. credit card is getting to the normalized run rate. So fair to assume that slippages have peaked in this quarter? Unidentified Comapny Representative Again, Rahul, honestly, I'd love to say that, and we all want to. But as we said, it's a Q4 right now, and there is definitely always a year ending phenomena that plays out. And as you rightly said earlier in your question that Q1, Q2 typically has a seasonal impact. So honestly, I would like to resolve my comments on that and just make it out. But definitely, I think in all the businesses, we have seen an improvement in slippages. And hopefully, we can come back to you. If there is no major heat wave or other things, then hopefully, we should be there. But let's just wait out for Q1, Q2. Some seasonality always plays out. I don't want to really comment that. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 22, 2025 / 12:00PM, AUFI.NS - Q4 2025 AU Small Finance Bank Ltd Earnings Call

Question: Piran Engineer - CLSA - Analyst : Sir, first question is on asset quality. Last quarter, I remember you had indicated some elevated slippages in the small transporter segment within vehicle finance, especially in wanted to check with you how is the situation there in that portfolio as of now? And secondly, if you can share some color on collections in the microfinance portfolio in the month of April. Whether that 99.2% number in March has gone down to, let's say, INR967 -- or it is still holding up, let's say, around about 98%. Unidentified Comapny Representative So yes, I'm (inaudible). So first of all, for the small transporters, small commercial vehicles can say that, loading vehicles -- the situation has improved. The collection has improved throughout the Q4 and more of subfabswas good collections and good efficiency there. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 22, 2025 / 12:00PM, AUFI.NS - Q4 2025 AU Small Finance Bank Ltd Earnings Call

Question: Piran Engineer - CLSA - Analyst : Sir, if I can just squeeze in one more question. On the SAR book, can you just break out what proportion of the SAR book is with depositors who have balances below 1 lakh -- below 3 lakh, below 5 lakh. If you can do that. Unidentified Comapny Representative So Ashish, we can -- you can write to us and we can respond to this because this is -- we don't have this data backup (inaudible)

Question: Shailesh Kanani - Centrum Broking - Analyst : Sir, my question is with respect to MFI first of all. We have around 16% of our book, which is impacted by the imprints (inaudible). So in case the customers are regular in prep loan general industry is going towards that. What is our view on that? Unidentified Comapny Representative Salesh, you are not very clear or audible. Can you just repeat the question?

Question: Shailesh Kanani - Centrum Broking - Analyst : Yes. So approximately 16% of the portfolio is impacted by Mfin 2 guardrails, right? So in cases where these customers are kind of regular in repayments, are we considering transitioning them to an individual loan product? Because incrementally, industry is also seeing a momentum towards that. So how are we viewing that? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 22, 2025 / 12:00PM, AUFI.NS - Q4 2025 AU Small Finance Bank Ltd Earnings Call Unidentified Comapny Representative So Shailesh, Individual loans is something which we have to strategically debate and come back and see whether we sort of want to migrate to that and as a general microfinance proposition because it's not just about the impacted customers, it's not a broader construct. I would just say that we are working with our customers. We have -- these customers have been well educated over the last one or two quarters for the guardrails, which have been launched and what we were transitioning to. My personal belief is that the people who are still good with us and not delinquent or NPA, even if they are impacted A lot of them are having capability or conviction to repay their loans. So generally, we're not seeing, at least as we are tracking April impact on the industry guardrail changes at this point of time.

Question: Shailesh Kanani - Centrum Broking - Analyst : Yes. Yes, I'm aware of that. I was just thinking -- I mean, I was just wondering if we are considering that as a product. Unidentified Comapny Representative Not just to react to the situation. but improving business model thinking and as obviously, there is a learning and improvement that we need to make out of this overleverage cycle. So the model will evolve, but I wouldn't say as a reaction to to a guardrail impacted customer. So -- and microfinance models typically evolve over a few years. They don't -- they're not reactive to a situation because ultimately, there are a large number of workforce customers, and there's a lot of signs behind what has been built over the last two decades. So, I would say some evolution would happen, and we'll work that through in this financial year.

Question: Pritesh Bumb - DAM Capital Advisors - Analyst : Yes. So one question was on the gold loan NPA side. So that has been inching up a bit. Now it is more than anything on that because we're seeing a little bit of increase there. Unidentified Comapny Representative Yes. So some NPLs have come through, through the transition. As you know that we had a merger last year and Finke used to do this business. So we have seen some transition -- but hopefully, we should get back in control going forward. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 22, 2025 / 12:00PM, AUFI.NS - Q4 2025 AU Small Finance Bank Ltd Earnings Call

Question: Pritesh Bumb - DAM Capital Advisors - Analyst : So if I want to take a follow-up on that, so are we changing anything in terms of tenure of the mix, the approach to that business or -- Unidentified Comapny Representative Which one?