MOSL: AU SMALL FINANCE BANK (GROUND REALITY): Growth momentum robust-business granularity improving steadily
AU SMALL FINANCE BANK (GROUND REALITY): Growth momentum robust; business granularity improving steadily; Asset quality metrics under control
AUBANK has been navigating well through the economic slowdown and delivering healthy balance sheet growth (45% YoY growth in 2QFY20). After incurring significant expenses to put the building blocks in place as it transitioned into a small finance bank, the earnings momentum is gaining pace. With the bank appearing set to expand market share in chosen business segments, we visited its regional office and one of its largest branches in Pune to understand the progress that it is making. Separately, we visited a new vehicle dealer for AUBANK to understand the trends in vehicle financing – a segment which has shown growth moderation across lenders. Key takeaways from our visits:
- AUBANK has stepped up its focus on the used vehicle segment to (i) combat the slowdown in new vehicles and (ii) capitalize on its long-standing vintage in used vehicle financing, which offers higher risk-adjusted yields and profitability. The bank has been expanding its penetration in the used distribution channel.
- Nearly half of incremental used vehicle disbursement now comes from non-bank/outside channels (i.e. used outlets of OEMs, semi-organized and small vehicle dealers) compared to ~20% earlier. However, origination of new vehicle loans is completely in-house.
- Generally, used vehicle delinquency trend is a tad higher (by 70-80bp) than new wheels; however, the same is partially offset by the lower delinquency levels in refinance (cash on wheels), resulting in similar asset quality for the combined used portfolio as in the new vehicle portfolio.
- AUBANK gains a competitive advantage by offering monthly interest payouts and higher interest rates in comparison to peers. This facilitates faster customer acquisition and build-up of savings balances.
AU Small Finance Bank Ltd. AU Small Finance Bank Limited, formerly Au Financiers (India) Limited, is an India-based small finance bank company. The Company provides wholesale banking, personal banking, insurance and retail loans products and services. Its personal banking includes savings account, current account, term deposit, debit card, locker and insurance. Its retail loans products and services includes wheels, secured business loan, gold loan and Kisan loan. Its wholesale banking products and services include business banking; non banking financial company (NBFC), household finance corporation (HFC), micro finance institutions (MFI) lending; and real estate group. It also provides Government banking. Kisan Loans are specifically designed to meet the production and investment credit requirement for farmers in a timely and simplified manner.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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