AU Small Finance Bank slips 8% on asset quality concerns

The announcement of a lockdown in a few states can have some impact on the lender's collection efficiency and the demand outlook, and thus would be a key monitorable

Shares of AU Small Finance Bank slipped 8 per cent to Rs 927.10 on the BSE in intra-day trade on Monday on assets quality concerns as the bank's gross non-performing assets (GNPA) ratio increased to 4.3 per cent in March 2021 quarter (Q4FY21), against pro forma GNPA ratio of 3.3 per cent in December 2020 quarter (Q3FY21).  The announcement of a lockdown in a few states can have some impact on collection efficiency and the demand outlook, and thus would be a key monitorable.

The stock was trading lower for the third straight day, falling 19 per cent during the period. It corrected 32 per cent from its 52-week high level of Rs 1,356, touched on March 30. At 09:41 am, the stock was down 6.4 per cent at Rs 939 on the BSE, against 0.72 per cent decline in the S&P BSE Sensex. A combined 1.6 million equity shares have chnaged hands on the NSE and BSE, so far.

The bank’s net interest income grew 4 per cent quarter on quarter (QoQ) and 18 per cent on year on year (YoY) to Rs 656 crore during the quarter. NII in Q4 was impacted due to interest reversals of Rs 66 Cr on account of NPA tagging of borrower accounts in compliance with RBI circular of April 7. The Bank had made Rs 38 crore of provisions against these reversals which were utilized during the quarter, the bank said. The bank’s profit after tax declined 65 per cent QoQ at Rs 169 crore.

Increase in GNPA was due to a particularly affected stressed pool that was less than 90dpd and paying, but were ‘once NPA’ and have been tagged as NPAs now. This resulted in an increase in NPL’s by Rs 540 crore (1.6 per cent of loans). PCR declined to around 50 per cent v/s around 61 per cent in Q3FY21, with the bank carrying additional contingent provisions of Rs 70 crore. Also, total restructured loans increased to 1.8 per cent v/s 1.5 per cent guided for in Q3FY21. The bank carries a provision of Rs 115 crore on this, Motilal Oswal Securities said in a results update.

AU Small Finance Bank’s reported earnings were impacted by one-offs in the form of higher interest reversals and increase in opex, led by ESOP-related expenses. On the business front, retail deposit mix continues to improve, while AUM growth remains strong. Asset quality witnessed a deterioration, while the restructuring book stands at 1.8 per cent of loans. Collection efficiency and customer activation rate have moved higher than pre-COVID levels, with around 81 per cent of loans at zero dpd, similar to FY20. However, PCR declined sharply, affected by higher slippages from ONAN assets, the brokerage firm said. “We remain watchful on asset quality and cut our FY22E/FY23E earnings by 20 per cent/17 per cent to factor in higher credit cost,” it said.

Meanwhile, AU Small Finance Bank made a notable announcement of resignation of Chief Audit Officer (CAO) it its exchange filings, post numbers for Q4FY21 were declared. It is learnt that he had initially resigned in December 2020 but bank did not find replacement. As revealed by the bank CAO tendered resignation on 3rd March 2021 but his resignation was not mentioned in board’s meet for QIP on March 9, 2021.

Mr. Nitin Gupta, CAO (who is an employee of the Bank and is in charge of Internal Audit function), submitted his resignation request on 3rd March 2021 to pursue career opportunities outside the Bank. His resignation was not accepted, whilst the Bank had further discussions with respect to his continuation in the organisation. When these discussions didn’t materialize, Mr. Gupta’s request for resignation was placed at the Audit Committee & Board Meeting held on 29th April 2021; AU Small Finance Bank said in exchange clarification.

The Audit Committee accepted his resignation with effect from May 13, 2021 and new Chief Audit Officer (Internal Audit) will take charge from May 14, 2021. Mr. Gupta will remain in employment with the Bank until completion of his notice period. Accordingly due disclosure was made within the stipulated time, the bank said.