AU Small Finance Bank Sees Major Block Deal: 1.3 Crore Shares Traded

AU Small Finance Block Deal 

On Monday, AU Small Finance Bank Ltd. witnessed substantial market activity as 1.3 crore shares, representing approximately 1.7% of the company’s total equity, changed hands during a pre-market block window. While the identities of the buyers and sellers in this transaction remain undisclosed, the block deal has sparked considerable interest among investors and market watchers.

Promoters’ Stake and Recent Performance

As of the June-end quarter, the promoters of AU Small Finance Bank held a 22.92% stake in the company. This significant ownership highlights the continued confidence of the promoters in the bank’s long-term growth potential.

In the stock market, AU Small Finance Bank Ltd. saw its shares rise by over 1% today, trading at Rs 632.75. However, the stock has faced challenges recently, declining by 2% in August alone. Furthermore, on a year-to-date basis, the stock is down by 20% in 2024, reflecting the broader market’s volatility and the bank’s specific challenges.

AU Small Finance Bank: A Journey of Growth and Expansion

AU Small Finance Bank, originally known as AU Financiers (India) Limited, was incorporated in 1996 as a Non-Banking Financial Company (NBFC). The company initially focused on Commercial Vehicle (CV) lending, beginning in 2003 as a franchisee originator for HDFC Bank under the ‘Channel Business’ model. By 2007, AU Small Finance Bank transitioned to lending on its own books, gradually expanding into various segments, including MSME and SME lending, housing loans, structured financing, and other types of vehicle financing.

In December 2016, the company received a Small Finance Bank (SFB) license from the Reserve Bank of India (RBI) and commenced its banking operations in April 2017. Just a few months later, in November 2017, AU Small Finance Bank attained the status of a Scheduled Commercial Bank (SCB). This transition allowed the bank to broaden its product offerings and expand its geographical footprint, marking a significant milestone in its growth trajectory.

Managing Asset Quality Amid Economic Uncertainty

AU Small Finance Bank has demonstrated resilience in managing its asset quality, even with a significant portion of its portfolio exposed to economically vulnerable segments. As of March 31, 2024, approximately 89% of the bank’s advances were secured, offering a buffer against potential losses. The bank’s Gross Non-Performing Assets (GNPA) ratio has remained relatively stable over the years, with levels ranging from 1.7% to 2.1% between FY18 and FY20. However, the GNPA ratio peaked at 4.3% as of March 31, 2021, due to the adverse impact of the COVID-19 pandemic on borrowers.

During the pandemic, the bank’s major segments, Wheels and Micro Business Loans (MBL), experienced higher slippages. However, since the peak of June 2021, the bank’s asset quality has steadily improved, with the GNPA ratio declining to 1.67% as of March 31, 2024. This improvement reflects the post-COVID recovery, which has supported borrowers’ cash flows and repayment behavior, leading to higher collection efficiency in FY24.

Despite these positive trends, delinquencies increased in FY24, particularly in the credit card portfolio, which contributed to higher credit costs. As of March 31, 2024, the bank’s credit card book stood at Rs 3,058 crores, accounting for about 4.1% of its gross advances. The GNPA and Net NPA (NNPA) ratios as of June 30, 2024, were 1.78% and 0.63%, respectively.

Financial Performance in Q1FY25

AU Small Finance Bank’s financial performance in the first quarter of FY25 reflects its ongoing efforts to navigate a challenging economic environment. The bank reported a net profit of Rs 503 crores on a total income of Rs 4,315 crores during Q1FY25. This performance underscores the bank’s ability to generate stable earnings despite the  headwinds and increased credit costs.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.