Collections will sustain at pre-Covid levels if there is no lockdown: Sanjay Agarwal, MD & CEO, AU Small Finance Bank

November 19, 2021 3:15 AM

Currently, we are providing no guidance on this as the situation remains fluid. However, we believe we are very strongly positioned in terms of balance sheet strength to capture the opportunities in the segments we operate in.

Sanjay Agarwal, MD & CEO, AU Small Finance BankSanjay Agarwal, MD & CEO, AU Small Finance Bank

By Piyush Shukla

AU Small Finance Bank’s average collection efficiency stood at 109% for the quarter ended 30 September and will sustain at pre-pandemic levels going ahead if the country does not face severe lockdown due to rise in new Covid-19 cases, says Sanjay Agarwal, managing director and chief executive officer of the bank, in an interview to Piyush Shukla. Excerpts:

You mentioned that demand across wheels, home loans and business banking is recovering and that you see green shoots in securities-based lending business. Which sectors are the ones generating demand?
Green shoots are visible in metals and mining, pharmaceuticals and biotech, as well as agriculture processing projects, which is expected to boost demand for smaller MSME (micro, small and medium enterprises) suppliers and retailers. Businesses have also started looking for capacity expansions and a good festive season should further boost sentiments.

Government expenditure and infrastructure contracts will also boost downstream demand as local level contractors and subcontractors start looking for bank guarantees and funding facilities. Similarly, barring any severe lockdowns, we hope to have better demand visibility in the next couple of quarters.

Can you give us any outlook on credit growth?
Currently, we are providing no guidance on this as the situation remains fluid. However, we believe we are very strongly positioned in terms of balance sheet strength to capture the opportunities in the segments we operate in.

On liabilities side, which markets are you tapping for more granular deposits?
The strategy of the bank remains that we take deposits from urban markets and lend them to core markets. We will continue to focus on building a low cost, stable deposits franchise.

What is your guidance on collections in October-March (H2FY22)?
Collection outlook looks good in H2FY22 with average expected collection efficiencies to sustain at pre-covid levels if there is no severe lockdown.

You had said that the bank will assess bad loan pool and write off loans with low chances of recovery. Considering the same, what is your view on asset quality for the current fiscal?
Improvement is being seen sequentially in terms of economic activity, borrower connect, business continuity, the overall confidence in the operating environment and there’s more visibility in the cashflows of customers. While we are not guiding for any particular GNPA (gross non-performing assets) number at this point in time, three key factors should aid NPA resolution in H2FY22 for us – small ticket and secured nature of our loan book which are given mainly for income generation purposes, improved borrowers’ cashflows, and overall supportive environment for recoveries.

We will look at each of the loan accounts and wherever we feel recoverability is low or our security interest is in jeopardy, we will decide on writing off those cases on a loan-by-loan basis. We have already made buffer provisions and would like to watch out the entire credit environment for next two quarters to assess credit cost.

Are you witnessing restructuring of loans presently and what number of provisions have you built for this book?
We are not witnessing any significant restructuring currently for our book. We are carrying provision of Rs 213 crore against our standard restructured book which we think is sufficient to address any eventual losses arising from this book. In addition, we are also carrying Rs 300 crore of contingency provisions (84 bps of net advances) which further strengthens the balance sheets and makes us better prepared for any unforeseen event.

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