Riding on small loans: AU Small Finance Bank's push towards unsecured retail segment

Jaipur-based NBFC-turned-small finance bank, AU Small Finance Bank, was founded by first-generation entrepreneur Sanjay Agarwal in 2017 and, in just a few years, has more than double the assets of its nearest competitor. It also has the best asset quality with the highest return on capital employed among its peers. No wonder that it is the Best Small Finance Bank in the BT-KPMG Best Banks and Fintechs Survey 2021-22. And that’s two years in a row.

That’s fine, but what’s AU’s growth plan? Sustainability and trust are two big pillars, says MD & CEO Agarwal. While the opportunity to grow is huge, it should come with profitability, trust and sustainability, he says, adding, “I will pick quality over quantity. This will make the bank sustainable.”

Founded as a vehicle finance company in 1996, AU was converted into a small finance bank in April 2017. Since then, it has grown manifold. Consider this: in FY17, AU had 301 touch points in 10 states that has now grown to 1,000. From lending to 560,000 borrowers, it served more than 2.75 million customers with a deposit base of more than Rs 50,000 crore in FY22. Its loan assets have also scaled from Rs 10,700 crore in 2017 to more than Rs 47,000 crore in FY22. This has helped the bank build a scaleable and sustainable model.

In H1FY23 its net income grew 31 per cent to Rs 2,466 crore from Rs 1,884 crore in H1FY22. AU also witnessed a growth of 27 per cent in net profit to Rs 610 crore in H1FY23 from Rs 482 crore in H1FY22. And deposits grew 49 per cent to Rs 58,335 crore while advances jumped 44 per cent to Rs 51,743 crore.

Going forward, Agarwal wants to focus on vehicles, secured business, home loans and commercial banking. “Now, around 88 per cent of our assets are retail and 94 per cent are secured. But five years from now, I would like to see 75 per cent of our assets in retail and around 80-85 per cent as secured… as some lending will be in personal loans and credit cards,” he says.

Agarwal also plans to offer superior digital capabilities and cross-sell its wide bouquet of services along with prioritising the deposit aspect, which is critical for growing the retail book.

@teena_kaushal