AU Small Finance Bank Q3 Results Review - Elevated Opex, Credit Costs To Keep RoA At 1.6-1.7%: Axis Securities

Axis Securities Report

AU Small Finance Bank Ltd.'s advances growth was slower at 20/4% YoY/QoQ, owing to slower growth in the core segment (~60% mix) of wheels (5/-2% YoY/QoQ), MBL (+6/3% YoY/QoQ).

However, growth in home Loans (+44/5% YoY/QoQ), business banking (+56/11% YoY/QoQ) remained healthy.

Net interest income grew by 15/6% YoY, highe than our expectations owing to lower than expected net interest margin compression. Margins declined by ~6 basis points and stood at 5.5% in Q3 FY24.

Non-interest income growth was primarily driven by healthy fee income (+33/4% YoY/QoQ). Opex growth was elevated (+25/9% YoY/QoQ) to reflect the investment phase resulting in cost-income ratio of 63% versus 61.3% QoQ.

Credit costs (calculated) stood at 96 bps versus 24/71 bpsYoY/QoQ. Profit after tax degrew by 4/7% YoY/QoQ.

AU Small Finance Bank's gross non-performing asset increased to 1.98% versus 1.91% QoQ, owing to higher slippages from the credit card portfolio and slower recoveries from core states of Rajasthan and Madhya Pradesh owing to state elections.

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