AU Small Finance Bank profit rises 32% as provisions fall

The bank made provisions of Rs 38 crore, lower by 81% YoY because of improvement in the asset quality and Covid-related provisions.

AU Small Finance Bank profit rises 32% as provisions fall
However, the bank’s pre-provisioning operating profit took an 18% hit to Rs 394 crore as other incomes fell and operating expenses rose. Other income fell 26% to Rs 159 crore due to losses of Rs 55 crore in treasury operations.

AU Small Finance Bank on Wednesday reported a 32% year-on-year increase in its net profit for the first quarter of the current financial year to Rs 238 crore as provisions fell. The bank made provisions of Rs 38 crore, lower by 81% YoY because of improvement in the asset quality and Covid-related provisions.

However, the bank’s pre-provisioning operating profit took an 18% hit to Rs 394 crore as other incomes fell and operating expenses rose. Other income fell 26% to Rs 159 crore due to losses of Rs 55 crore in treasury operations.

The bank witnessed a marginal compression of 1 basis point (bps) in its net interest margin (NIM) to 5.9%. It expects to maintain the NIM in FY23 due to an increase in interest rates on floating loans, which consist of 25% of the book. The increase in loan yield will more than offset the rise in cost of funds, the bank said in a statement.

Net interest income (NII) rose 35% YoY to Rs 976 crore, aided by stable spreads and growth in assets under management (AUM). The cost of funds moderated to 5.7% in Q1FY23 from 6.3% in the previous year. The bank’s deposits grew 48% to Rs 54,631 crore with the current account, savings account (CASA) being at 39%, compared with 26% in the previous year.

“The macro-economic environment and geopolitical challenges have kept inflation levels elevated and interest rates are hardening. While these impact costs, our endeavor remains on maintaining our return ratios,” a press release quoted Sanjay Agarwal, MD and CEO of the bank, as saying.

The gross NPA ratio marginally fell to 1.96% during the quarter under review, against 1.98% on a sequential basis and 4.31% on a year-on-year basis. The net NPA ratio increased by 6 bps on a sequential basis to 0.56% as on June 30, against 2.26% a year ago. The bank’s provision coverage ratio stood at 72%.

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