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Company Profile

Founded in the year 1996, an Indian Small Finance Bank with its headquarters in Jaipur is called AU Small Finance Bank Limited. In 2017, it changed its name from AU Financiers (India) Ltd, a vehicle finance firm, to AU Small Finance Bank. AU Small Finance Bank provides financial services to the low- and middle-income group people as well as micro- and small-business owners who have little to no access to conventional banking and financing systems. Loans, deposits and payment products and services are all provided by the Bank. A “AA-/Stable” long-term credit grade has been given to the bank by various rating agencies. Sanjay Agarwal founded the business.

Banking Sector and Small Finance Banking Industry in India

•   India’s banking industry, according to the Reserve Bank of India (RBI), is adequately capitalised and well-regulated. The Nation has significantly better financial and economic circumstances than any other Nation in the world. Studies on credit, market and liquidity risk indicate that Indian banks are generally robust and have fared well during the global recession. Innovative banking formats like payments and small financing banks have recently been introduced to the Indian banking sector. India has recently concentrated on expanding the scope of its banking sector through a number of initiatives like the Pradhan Mantri Jan Dhan Yojana and Post Payment Banks together with significant banking sector reforms like digital payments and fintech, have greatly improved India’s economy.

•   In addition to Cooperative Credit Institutions and Small Finance Banks, the Indian banking system includes 12 Public Sector Banks, 21 Private Sector Banks, 44 Foreign Banks, 43 Regional Rural Banks, numerous Urban Cooperative Banks and Rural Cooperative Banks. The combined assets of the public and private banking sectors were respectively $1,594.41 billion and $925.05 billion in 2022 (approximately). Credit growth is anticipated to reach 10% in 2022–2023, which would be a double-digit growth in few years, according to India Ratings & Research (Ind-Ra). Bank credit totalled $1585.09 billion as of November 4, 2022. During FY16-FY22  deposits reached US$ 2.12 trillion. According to the RBI, India’s foreign exchange reserves reached US$ 609.02 billion (approximately) as of 2023. 

•  The country has experienced a tremendous growth in fintech technologies, digital banking and digital payments according to the Union Budget 2023–24. Enhanced spending on infrastructure, speedy implementation of projects and continuation of reforms are expected to provide further impetus to growth in the banking sector. The Indian fintech market has so far (2017–2022) garnered US$ 29 billion (approximately) in funding across agreements, making up to 14% of the world’s funding. India’s fintech business is anticipated to grow to 6.2 trillion rupees (approximately) by 2025.

• In order to advance the objectives for which it was established, the small finance banks of the country will primarily engage in basic banking activities, such as accepting deposits and lending to underserved groups and sector entities. It may also engage in other straightforward financial services activities without the sharing of risks that do not involve any commitment of own funds, such as the distribution of mutual fund units, insurance products, pension products, etc., with the prior approval of RBI and after fulfilling the requirements of the sectoral regulator for such products. The small financing banks may potentially apply to become a credit union in order to better serve its clients. To set itself apart from other banks, the small finance bank must include the designation “Small Finance Bank” in its name.

Company Perspective and Review

• Except for the cost of funding, the near- to medium-term outlook for the small financing bank appears to be stable to positive, according to the various brokerage research report firms. The bank has witnessed increasing Net Profit with increasing Profit Margin (YoY). 

• The AU Small Finance Bank has declared an equity dividend of 10.00%, or Rs.1 per share, for the fiscal year ending March 2023. This yields a dividend of 0.13% at the current share price of Rs. 767.30. The business has a solid track record of dividend declarations during the past five years.

•  The stock Beta signifies low volatility. The CASA (%) ratio of the bank has improved over the years. Brokers have given BUY recommendation.