AU Small Finance Bank - Showcasing liability strength - cuts SA rate - ICICI Securities

AU Small Finance Bank showcasing its improved liability franchise, reduced saving deposits rate by ~100bps in select buckets (refer Table 1), while it kept entry-level SA rate (
- SA rate cut by ~100bps in select buckets. Deriving comfort from increasing acceptance of 'AU brand' deposits grew robust 38% YoY in FY21 and 1st time since the commencement of SFB operations CD ratio fell below 100%, it cut SA rate by ~100bps for balances between Rs1mn-2.5mn and Rs20mn-50mn. SA rate remained unchanged for balances up to Rs0.5mn.

- Focus on deepening customer relationship. It had incrementally focused on quality vs quantity acquisition and deepening engagement/relationship with deposit customers during FY21. Active engagement with e-commerce players, improved payment & digital infrastructure and added branches in urban markets strengthened its liability muscle in FY21 as reflected in - A) 41% YoY increase in transaction ticket size in FY21, B) 28% YoY growth in debit card spending, C) 7.5% YoY growth in customer activation in PoS/e-com, D) 2.3x jump in AMB (non-zero balance accounts and E) 2x jump in average transactions/transacting customers in FY21.

- Widening & deepening its presence in urban markets. During FY21, it added 37 new branches mainly in cities like Agra, Bhubaneshwar, Bengaluru, Hyderabad, Jammu, Kanpur, Kolkata, Lucknow etc. As of March'21, share of deposits from urban market stands at 74% vs 75% in FY20. Increasing presence in urban market backed by robust digital platform & payment ecosystem is likely to help further strengthen its liability franchise going ahead.

- Improving liability franchise will further strengthen its market positioning. AU's ability to think beyond traditional banking and building customer-friendly processes have helped it build strong retail liability franchise vs other SFBs. On the back of its improving liability franchise, its cost of fund continued to trend downwards, declining to 6.5% in Q4FY21 vs 7.5% in Q4FY20. Further, cost of incremental fund raised in Q4FY21 is significantly lower by ~60bps at 5.9%.

- Key risks: a) Stress unfolding higher than anticipated and b) delay in growth revival.

Shares of AU Small Finance Bank Ltd was last trading in BSE at Rs.943 as compared to the previous close of Rs. 946.85. The total number of shares traded during the day was 91569 in over 3899 trades.

The stock hit an intraday high of Rs. 955 and intraday low of 929. The net turnover during the day was Rs. 86060937.

Source : Equity Bulls

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