AU Small Finance Banks Q3 Profitability Hit by Rising Bad Loans

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AU Small Finance Bank Ltd reported a 4% decline in its net profit to Rs 375 crore for the third quarter (Q3) ended December 2023. This decrease was primarily attributed to a rise in bad loans. In the corresponding quarter of the previous fiscal year (FY23), the Jaipur-based bank had earned a profit of Rs 393 crore.

Key Financial Highlights

During the quarter under review, the bank's total income increased to Rs 3,186 crore, compared to Rs 2,413 crore in the same period of the previous year. The bank's interest income also witnessed a rise, climbing to Rs 2,736 crore from Rs 2,118 crore in Q3 of FY23.

Asset Quality Concerns

On the asset quality front, the bank faced challenges as its gross non-performing assets (NPAs) increased to 1.98% of the gross loans at the end of December 2023. This marked a rise from 1.81% a year ago. Similarly, net NPAs or bad loans also increased to 0.68% from 0.51% at the end of Q3 FY23. Consequently, the provisions and contingencies jumped to Rs 159 crore from Rs 33 crore in the same quarter of the previous year.

Expenses and Merger Update

The bank's total expenses escalated to Rs 2,528 crore from Rs 1,857 crore in the October-December period of the preceding fiscal. Meanwhile, the merger announced with Fincare Small Finance Bank in the last quarter is progressing as planned. Both the Competition Commission of India (CCI) and shareholder approvals have been obtained, leaving only the Reserve Bank of India (RBI) approval pending, according to Sanjay Agarwal, the bank's chief executive and founder.

AU Small Finance Bank's Q3 financial results reflect the impact of rising bad loans on its profitability. While the bank's total income and interest income increased, the surge in NPAs and provisions weighed down its net profit. The bank's merger with Fincare Small Finance Bank is on track, subject to the pending RBI approval.