AU Small Finance Bank Limited: history, ownership, mission, how it works & makes money

A Brief History of AU Small Finance Bank Limited

AU Small Finance Bank Limited, established in 1996, began its journey as AU Financiers (India) Limited, focusing on providing vehicle finance and loans to the underbanked sectors of society. The company transformed into a Small Finance Bank in April 2017, aiming to expand its services and enhance financial inclusion in the country. This transition allowed AU to offer a wider array of banking products, including savings accounts, current accounts, fixed deposits, and loans.

As of March 2023, AU Small Finance Bank reported a total asset size of approximately ₹80,000 crore (around USD 9.6 billion), showcasing substantial growth since its bank establishment. The bank has a unique positioning in the market, catering predominantly to the underserved segments.

In the fiscal year 2022-2023, AU Small Finance Bank recorded a net profit of ₹1,160 crore, marking a growth of 60% compared to the previous year. The bank's total income for the same period amounted to ₹6,450 crore, underscoring its robust operational capability.

The bank's net interest margin (NIM) stood at 5.4% for FY 2022-2023, a critical indicator of its profitability, while its gross non-performing assets (GNPA) ratio was reported at 2.1%. These metrics reflect prudent risk management and operational efficiency in its lending practices.

In terms of market reach, AU Small Finance Bank operated over 700 branches across 22 states and 2 Union Territories as of March 2023, serving more than 4 million customers. The bank's workforce has expanded to over 20,000 employees, further solidifying its operational capabilities.

In a significant development, AU Small Finance Bank successfully raised ₹1,500 crore in a Qualified Institutional Placement (QIP) during the year, enhancing its capital base to support future growth and lending capacity. This capital infusion aligns with the bank's strategic vision to expand its retail and MSME (Micro, Small and Medium Enterprises) lending portfolio.

For digital transformation, as of June 2023, AU Small Finance Bank had reported that over 70% of its transactions were conducted digitally, reflecting the growing trend of digital banking adoption among its customers.

As per the latest reports, AU Small Finance Bank was recognized as a top performer in the financial inclusion index of the Reserve Bank of India (RBI), highlighting its commitment to reach every segment of society effectively. The bank’s initiatives are aligned with the Indian government’s objectives for financial inclusion, aiming to provide services to rural and semi-urban areas.

Looking ahead, AU Small Finance Bank aims to further strengthen its footprint in the small finance banking sector by focusing on expanding its retail loan offerings, enhancing customer experience, and leveraging technology for service delivery.

A Who Owns AU Small Finance Bank Limited

AU Small Finance Bank Limited, headquartered in Jaipur, India, is primarily owned by various institutional and individual investors. As of September 2023, the ownership structure reflects a combination of public and private stakes.

In terms of shareholding, the following data illustrates the major stakeholders:

The promoter group, which holds a modest stake, includes the founders and early investors. The significant portion owned by FIIs indicates robust international confidence in the bank’s growth potential. The DII share reflects strong domestic institutional backing, a crucial factor in the bank's stability and expansion efforts.

As per the latest financial data released for the fiscal year ending March 2023, AU Small Finance Bank recorded the following:

The bank's focus on growth in the micro, small, and medium enterprises (MSME) sector and retail lending has positioned it as a competitive entity in the Indian banking landscape. As of the latest quarter, the bank has been expanding its branch network to further penetrate underserved markets.

AU Small Finance Bank's stock performance has also shown promising trends. As of late September 2023, the bank's shares were trading at around INR 760, reflecting an increase of approximately 30% year-to-date, suggesting a positive response from the market towards its strategic initiatives and financial health.

With a strong focus on digital transformation and customer-centric services, the shareholder composition and financial metrics of AU Small Finance Bank suggest a robust pathway for sustained growth and shareholder value enhancement.

AU Small Finance Bank Limited Mission Statement

AU Small Finance Bank Limited aims to empower the underserved with customized financial solutions. Their mission is to provide accessible, transparent, and responsible banking to individuals and businesses that lack adequate financial resources.

The bank's mission emphasizes creating a sustainable banking environment, enhancing the financial literacy of its customers, and fostering a culture of trust and respect. This approach is evident in their various product offerings, including savings accounts, loans, and payment services designed to cater to a wide demographic.

The following table outlines key components of AU Small Finance Bank's mission statement and relevant operational metrics:

As of the latest reports, AU Small Finance Bank has demonstrated significant growth with a net profit of ₹552 crore for the fiscal year ending March 2023. The bank's Total Assets stood at approximately ₹50,000 crore, reflecting a strong upward trajectory in operations and market presence.

The bank also highlighted its goal of expanding its branch network to 800 branches by March 2024, which is part of their strategy to enhance customer accessibility. As of October 2023, AU Small Finance Bank operates over 700 branches across various states in India.

In the realm of technology and innovation, AU Small Finance Bank has made strides with digital banking solutions, allowing customers to access services through a user-friendly mobile application, which has recorded over 2 million downloads.

Overall, AU Small Finance Bank Limited's mission statement is not just a declaration of intent, but a framework for their operations and customer interactions, grounded in real-world metrics and a commitment to enhancing financial accessibility across India.

How AU Small Finance Bank Limited Works

AU Small Finance Bank Limited operates as a small finance bank in India, primarily providing financial services to underserved customer segments. Founded in 1996 as a non-banking finance company (NBFC), it transitioned to a small finance bank in 2017.

The bank’s lending products include personal loans, vehicle loans, and home loans, targeting both individuals and small businesses. As of September 30, 2023, AU Small Finance Bank reported total assets of approximately ₹66,000 crore, reflecting its growth and expansion strategy in the micro, small, and medium enterprises (MSME) sector.

In the fiscal year 2022-2023, AU Small Finance Bank achieved a net profit of ₹1,603 crore, showcasing a year-on-year growth of 40%. The bank's net interest income (NII) stood at ₹3,310 crore, up from ₹2,471 crore in the previous fiscal year.

The bank’s total deposits increased to around ₹54,000 crore, with a customer base exceeding 6.5 million. The bank’s retail deposit ratio is impressive at approximately 83%, reflecting strong customer trust and engagement.

AU Small Finance Bank has diversified its offerings, including retail banking, corporate banking, and microfinance, with an emphasis on financial inclusion. The bank utilizes technology to enhance customer experience and streamline operations, resulting in strong customer satisfaction ratings.

The gross non-performing asset (GNPA) ratio remained stable at approximately 1.8% as of September 2023, showcasing effective asset quality management. Additionally, the bank's capital adequacy ratio (CAR) stood at 17.5%, well above the regulatory requirement of 11%.

AU Small Finance Bank has expanded its branch network to over 700 branches across various states in India, promoting accessibility to its services. The bank has also implemented various digital banking initiatives, which accounted for about 70% of its total transactions.

The bank’s focus on sustainability and social responsibility is evident, with initiatives aimed at empowering women and supporting local businesses. AU Small Finance Bank actively participates in digital literacy programs and financial education workshops to benefit its customer base.

How AU Small Finance Bank Limited Makes Money

AU Small Finance Bank Limited primarily generates revenue through various financial services targeted at the underserved and unbanked segments of the population in India. Key areas contributing to its profitability include interest income from lending, fees from financial products, and other banking services.

Interest Income

The largest portion of AU Bank's revenue comes from interest income, primarily generated from retail loans and advances. As of the fiscal year 2023, AU Small Finance Bank reported a total interest income of approximately ₹4,534 crores, with a net interest margin of around 5.5%.

Retail and Commercial Banking

AU Small Finance Bank focuses on retail banking services such as personal loans, vehicle loans, and microfinance. The bank's outstanding loan book stood at about ₹34,200 crores as of March 2023, which reflects growth driven by:

• Personal Loans: Contributing approximately ₹8,500 crores.
• Commercial Vehicle Loans: Accounting for around ₹12,000 crores.
• Microfinance: Generating about ₹6,500 crores.

Fees and Commissions

Another significant revenue stream is derived from fee-based services. The fee income has shown a robust growth trajectory, amounting to approximately ₹600 crores in FY 2023. The breakdown is as follows:

Treasury Operations

The bank also engages in treasury operations, which include managing the bank’s liquidity and investment portfolio. The treasury income for FY 2023 reported was approximately ₹300 crores, reflecting effective interest rate management and investment strategies.

Other Financial Services

In addition to traditional banking operations, AU Small Finance Bank has diversified into mutual funds, insurance, and investment advisory services. This expansion has contributed significantly to non-interest income, which amounted to around ₹1,000 crores in total revenue for FY 2023.

Loan Portfolio Performance

The asset quality of AU Small Finance Bank is monitored through metrics such as the Gross NPA (Non-Performing Asset) ratio, which stood at 2.1% as of March 2023, indicating effective risk management and a strong focus on collections.

Digital Banking and Technology Integration

Investment in digital banking services has further enabled AU Small Finance Bank to reduce operational costs while enhancing customer experience. The bank reported a customer base of approximately 10 million with an increasing adoption of mobile and internet banking services.

Conclusion

AU Small Finance Bank's multifaceted revenue model focuses on interest income, fees, and diversified financial services, bolstered by strong asset quality and digital initiatives aimed at improving customer engagement and operational efficiency.