AU Small Finance Bank's Profit Is Up 37 Percent, and the Secured Book Did the Work

AU Small Finance Bank reported first quarter net profit of 796 crore rupees on Saturday, against 581 crore a year earlier, a rise of 37 percent. The Jaipur based lender, which is working through a transition into a universal bank, also elevated chief operating officer Yogesh Jain to deputy chief executive.

Net interest income rose 32 percent to 2,695 crore rupees and net interest margin came in at 5.9 percent, 47 basis points better than a year ago though 7 basis points softer than the previous quarter. Pre provision operating profit rose a more modest 9 percent to 1,435 crore, because a 97 percent collapse in treasury earnings pulled other income down 15 percent to 689 crore. Operating expenses rose 26 percent to 1,949 crore, which the bank attributed to volume growth and spending on distribution, staff, branding and technology.

Asset quality did most of the lifting. The gross non performing assets ratio improved to 2.1 percent at the end of June from 2.5 percent a year earlier, helped by a 22 percent fall in fresh slippages to 798 crore. Provisions fell 30 percent to 372 crore, which the bank credited to normalisation in its unsecured business.

The composition of the loan book is the part to watch. The gross portfolio grew 23 percent to 1.44 lakh crore rupees, with secured lending up 25 percent against 11 percent for unsecured. A small finance bank leaning harder on secured credit is a bank preparing for a different regulatory perimeter, and that is consistent with where this one says it is heading.