Two-thirds of the bank is run from Mumbai, says AU SFB's Sanjay Agarwal

AU SFB MD & CEO Sanjay Agarwal says some clean up is expected in the third and fourth quarters, which will help in reducing NPAs

AU Small Finance Bank was in the news a few months back for some high level exits which resulted in a sharp fall in its share price. In an exclusive interaction, AU SFB’s MD & CEO Sanjay Agarwal talks to Manojit Saha about the bank’s human resource policies and the reasons behind the lender's healthy performance in the September quarter. Edited excerpts:

AU SFB's net profit grew 42% year-on-year (excluding a one-time gain in Q2FY21) to Rs 279 crore, on the back of a 37% y-o-y increase in Net Interest Income (NII). What is the reason behind the strong growth in NII?

The main reason behind NII growth is cost of money, which dropped 90 bps in the last one year. Cost of money came down because of our emphasis on retail deposits. We have worked around every aspect, current account deposits, savings accounts. Incrementally, we are getting money at around 5.5%. We don’t compromise on costs. We can compromise on growth, but not on fundamentals.

The percentage of current and savings account (Casa) deposits to total deposits is 30%. Where do you see it by the end of the current financial year?

Ideally, I want it to grow to 50%, but that may not be possible. Now that the economy will revive and a kind of momentum is already there, anything north of 35% by March, I will happily accept.

Other income has also posted a healthy growth? What was the main driver?

In this quarter we had loan disbursements, so we got a lot of processing fee and other related stuff. We had a surplus on the priority sector book, which we sold.

The reduction in gross non-performing assets is substantial on a sequential basis, at Rs 1,151 crore (3.2%) from Rs 1,496 crore (4.3%). Where do you see the ratio by the end of March?

In the six quarters after the Coronavirus (Covid-19) pandemic, the customers have also built-up a lot of buffers because of restructuring, because of emergency credit lines or because of  the moratorium. The economy has also rebounded very well. 

It is difficult to comment on the March numbers. October remains exciting. If Covid does not comes back, gross NPA would be at pre-Covid levels by March (1.6-1.7%).

We haven’t written-off any loans till now. From this quarter onwards, we will be doing some cleaning up. We will make efforts to boost collections through legal means, but if even then money does not come back, there will be some clean-up exercise (write-offs) in Q3 and Q4. That would also help us reduce our GNPAs.

AU Small Finance Bank has seen a high level of attrition in the past few years. Over 23,000 employees joined the bank in the last two years, while more than 13,000 exited. What could be the reason for attrition which is among the highest among peers? The bank has not made any comments in the analyst presentation on the issue.

You will appreciate that we are a retail franchise. We are spread across 15 states. So, when people join at a junior level, they want to figure out if they want to work in these verticals. There is a natural attrition in every bank, every NBFC, every fintech. So I don’t think there is a specific challenge in AU. I think the issue was blown out of proportion. Of course, it was at a senior level and we explained that generally during the second wave of Covid, people were not looking to move to Jaipur. The top 20-25 senior people have been in the bank for 7-8 years and they are running the bank very well. I don’t think it really worries us. We live in a country of 1.3 billion people. People have their own choices, organisations have their own choices. That is why we have not commented specifically on the issue.

Do you think there is a cultural issue between SFBs and other commercial banks that makes adjusting a challenge for employees?

I don’t know, but we do have a culture of working. If you see our results for the last 18 quarters, after six quarters of the Covid-19 pandemic, two-three quarters of NBFC crisis, etc, you will see us becoming stronger and stronger. In a winning team, people have to work in a disciplined manner. Hopefully, as we move forward, people will understand the importance of AU working. We are very flexible, we allow people to work from Mumbai, to work from Jaipur, to work from any place.

Are there any plans to shift the headquarters from Jaipur, to a metropolitan city?

We have around 24,000 people, out of that 18,000 people are based in Mumbai. Literally two-thirds of the bank is run from Mumbai. We have already gone through this transition. The whole branch banking group, the whole housing group, the treasury group is based out of Mumbai. That is why we are getting that kind of growth in branch banking. But there are certain roles, which are needed at Jaipur only. We have the whole back-end in Jaipur, the whole risk team is also in Jaipur.

The bank follows a rigorous rotation policy. There are instances when employees were shifted to four to five different departments in as many years. What is the reason for following such a policy?

That remains our strategy. This organisation is not five-years old. It is a 25-year-old organisation. I strongly believe that talent needs to work in different segments so that you can be the next leader. For me, if you are a chartered accountant, you can work in risk, you can work in accounts, you can work in strategy, compliance, audit. If you really want to grow, move around.