The third small finance bank (SFB) to go for a public offer, AU Small Finance Bank will look to consolidate itself on the assets front before aggressively hunting for deposits, managing director and CEO Sanjay Agarwal told reporters at a press conference. The Jaipur-based bank will launch its follow-on public offer, through which it plans to raise Rs 1,912 crore, on June 28. Edited excerpts:
Why did you hive off your housing finance division?
The Reserve Bank of India was very sure about what it wants from SFBs. The first condition they put in was that any SFB can’t have any subsidiary of the product which bank can do. So neither you can have a housing subsidiary nor a microfinance subsidiary. You cannot also have an insurance subsidiary because you can do proper agency.
We were running AU Housing Finance and we had two options — either to divest or to merge. That company we had built on the expertise of some senior leadership team and we allowed them to continue that business because we can also rebuild our AU bank. Being a bank, you also want to figure out your ALM (asset-liability mismatch) and your possibility of pricing the risk around housing. Third, it was monetisation. We were looking for some capital and we sold at a higher premium.
Your gross non-performing assets (NPAs) have jumped to 1.6% in March 2017 from 0.64% in March 2016.
We have to see two things. The first is the NPAs based on the 120-day-period norm. We were at 150 days and then we moved to 120 days. For NBFCs, that was a regulatory requirement. So one bump came because of that. The second part is that the FY16 performance was exceptionally good post two-three years of diesel price rising and overall industry-wide rise in NPA numbers. FY16 was a better year when diesel prices fell. So the base was low and that’s why the rise seems a little higher. If you compare it with industry peers, you will find it below average.
What would your strategy for the liability franchise be?
Liability is a very long-term strategy. Allow us one year to understand what customers want. We have done our assets well, which is more difficult than liabilities, in my opinion. In terms of liabilities, we have a three-pronged strategy. One, let’s find what the customer wants. We are pricing ourselves at 5-6.5% in savings accounts. We are offering 7.5% around FDs (fixed deposits). That’s one advantage. The second is the convenience and flexibility of service. The third is that AU will try to build a product which has a linkage between the asset and the liability and comes as a complete package.
In terms of branches, we have already 280-plus branches with 3,000 experienced bankers with us.
In the last 10 to 15 years, what have your peak NPA levels been?
We do only productive assets, which means we do not do anything unsecured. If we do productive assets, the funding is going to enhance the income level of the customer and then he has to pay from the surplus. So that’s one thing. Second, I think we have done very granular (loans). Our ticket size is around `3 lakh a loan and that too, secured loans. Our NPA peaked in 2013-14 when 40% of our loans were on diesel (vehicles) and diesel prices were skyrocketing. But as soon as that got stabilised in 2015-16, we saw a drop in NPAs. On a 10-year horizon, our NPA was always around 2%.
What are the targets for branch expansion?
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We have 280 in our existing branch set-up. We need to open 100 more branches in this year itself and we also have 125 asset centres. So by March, we will easily have around 500 touch points in 10 states, offering all products. As we move forward, a lot of things can happen on digital, a lot of things can happen around BC (business correspondents) and a mix of all those things. So this year, we will figure out the requirement and proceed accordingly.