AU Small Finance Bank Ltd
NSE:AUBANK
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AU Small Finance Bank Ltd
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Ladies and gentlemen, good day and welcome to the Q4 FY '22 Earnings Conference Call of AU Small Finance Bank. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Aseem Pant, VP, Investor Relations. Thank you and over to you, sir.
Thank you, Margaret. Good day to everyone, and welcome to AU Bank's earnings call for the fourth quarter of FY '22. We thank you all for joining the call today, and we hope you and your dear ones are safe and well. For approximately the first 20 minutes of the call, we will have brief remarks by members of our senior management, followed by 30 to 45 minutes of Q&A.
Firstly, we will have our MD and CEO, Mr. Sanjay Agarwal, share his thoughts on the performance and overall outlook for the bank. He will be followed by our Executive Director, Mr. Uttam Tibrewal, who will share his thoughts on business outlook for assets and liabilities. And finally, we will have Mr. Vikrant Jethi, Head of Collections, who will discuss asset quality for the bank. Besides them, we also have a few other members of our senior management to answer any other questions you might have.
For the benefit of everyone, we would humbly request that the number of questions per participant be restricted to a maximum of 2 and to join back in the queue or mail us in case you have any further questions.
With that I will request our MD and CEO, Sanjay Agarwal, to share his thoughts on the financial performance and outlook.
Thank you, Aseem. Good evening, everyone. Namaskar. Thank you for joining in. We hope that you and your dear ones are doing well and keeping safe. Quarter 4 FY '22 marks the completion of our 20 quarters of our banking operations. I would also like to begin by congratulating everyone on completion of 5 years as a bank. We have crossed this important milestone with flying colors. In 2017, we had 403 touchpoints in 10 states, which grew to 919 touchpoints in 18 states and 2 UTs in 2022; from lending to 5.6 lakh customers to serving our 27.5 lakh customers now; grew a family of 8,500 people to a winning team of 27,800; built the liability franchise; running a deposit base of INR 52,500 crores plus; scaled the asset book from INR 10,700 crore to INR 47,800 crores with superior asset quality; built a state-of-the-art tech ecosystem; established gold standard in governance. And this happened in spite of headwinds of demonetization, GST, NBFC crisis, PMC crisis, private sector bank crisis and battling the pandemic have only made us more resilient and confident in our customer and product segment.
The tailwinds of digital adoption gave us the strength to venture into the journey of many firsts, like AU 0101, credit card, QR code, Video Banking, etc. The team has shown incredible commitment, ownership, bias for action, and entrepreneurship. The story remains very exciting for me personally from the last 27 years. AU is on the track of empowering India financially, digitally, and socially. Thanks to your support, we remain one of the most exciting franchise of the country.
We're very grateful to the government, regulators, Board, you, the customers, the team, the shareholders for bestowing us with so much love, affection, guidance, and trust. For me personally, FY '22 was year of roller coaster ride. Quarter 1 was washed out due to devastating second wave where we lost so much both in terms of lives and livelihood. In quarter 2, we faced an unnecessary misunderstanding as well as baseless rumors around certain personnel movement in our bank. On a personal note, I lost my father, the founder and promoter of AU Bank. He was instrumental in shaping the person I am and had laid the foundation of our bank.
In the latter half of the year, we witnessed the third way, although it turned out to be quite limited in its impact. Nevertheless, growth came back in the second half of the fiscal. Hope you have seen the recently declared quarter 4 results. The last quarter remained very high in terms of numbers from deposits to access to payments to digital. Some highlights are as under. We launched 32 new touchpoints in this quarter. We hired 2,300 plus people. Our deposits grew by 46%, and our focus remained on low-cost stable funds, and we reduced our cost by 88 bps in this year, and we maintained ample liquidity. We disbursed around INR 10,295 crores of loans in this last quarter, the highest ever in the history of AU.
Our balance sheet size grew by 34% year-on-year. Network grew by 20% year-on-year. And our capital adequacy is at 21% plus. We also generated the highest ever operating profit in this quarter. Our ROA stood at 1.9% and ROE at 16.4%. Asset quality is getting back to pre-COVID levels. Our GNPA reduced to 1.98% from 2.6% quarter-on-quarter. Net NPA has been reduced 0.5% from 1.3% quarter on quarter. As a bank, the improving operating environment and our strong operating performance and higher resolution in the stress accounts during quarter 4 gave us some flexibility around our quarter 4 numbers. But we chose to remain more measured to secure our future by putting more money into the provisions and have further strengthened our provisioning policy committing us to higher coverage in the future as well.
We have not taken any contingency provisions to P&L. Rather we have created an additional floating provision of INR 41 crores. Given the secured and retail nature of our book and our historical experience, in my view, we are currently significantly over provided with PCR of 75%-plus provisions around restructuring, contingency, and floating. The main reason we have tightened our provisioning policy is further to structurally create a buffer creation mechanism as growth picks up, more from Vikrant on this. The risk from geopolitics and macroenvironment have led to strong inflationary pressures on our operation with costs are going up in everything, from salaries and related expenses to employees to tech and maintenance contracts. I know that OpEx is high in the current quarter, and we hope to go back to normal number in the mid- to long-term.
Similarly, in the rising interest rate environment, income from treasury operation is also expected to remain subdued in coming quarters. However, our cost of funds continues to decline, and we think there is still some room for repricing. Our digital initiatives are progressing well and are providing a visible uplift in our pace of customers' acquisition. Notably, our 40% of new customers acquired in quarter 4 were through our recently launched digital channels and product that is 0101, credit card, Video Banking, UPI QR. Our 5 SBUs, Digital Banking, Credit Cards, Merchant Solution Group, Wheels, Home Loan has already presented 2 AU Insights session in last quarter. I hope you would have gone to know a lot more about their business strategy, the team, and the outlook in greater detail. The remaining 5 SBUs will also be presenting you in coming months.
Governance has always been the backbone of our growth since the start of our, which has been validated time and again by market regulators and rating agencies. Last quarter, we were joined by Shri. H. R. Khan saab, ex-RBI Deputy Governor on Board as an Independent Director. And this quarter, I take this opportunity to welcome Shri. Kamlesh Vikamsey on our Board as an Independent Director. I believe the bank will eventually benefit from his niche audit experience spanning over 4 decades, and I personally look forward for his mentorship.
With this induction, the overall Board strength has now risen to 10 and 8 being independent. I am also thankful to the Board for agreeing to reward the shareholders of the bank as we celebrate completion of 5 years of our banking journeys with an approval of issuance of bonus shares in the ratio of 1:1. The bank Board also has approved a dividend of INR 1 per share for FY '22. Both these measures are subject to shareholders' approvals.
I'm very happy to share that CARE Ratings upgraded our bank's long-term rating to AA/Stable and retained our short-term rating to A1 Plus. This is strong validation of our banking franchise and asset quality despite the pandemic-induced challenges. In the end, I would like to say that we are watchful of inflation, interest rate cycles, geopolitical situation, and the effects of [ residing ] pandemic. However, I think that what we have faced in the last 2 years and survived was much more challenging, and we are far more hopeful about the coming times.
I'm very excited about the India story, one of the world's largest and fastest growing economy with the largest youth population in the world, rising global competitiveness, driving economic influence, and the strong central bank policies. Although we are cautious in the short term, but we are very, very optimistic in long run. We understand that being the largest small finance bank of the country puts us in the position of a great responsibility. We are always mindful of our duties as credible bankers. We promise you gold standards in risk management, governance, compliance, and integrity. We remain indebted to our regulators, government, and stakeholders, both to hold our hand and to keep us on the right path. We continue to invest in our 10 strategic business units and shall always be promising and likable franchise to be joined by people.
Thank you so much. Stay safe. And I want to hand over to Uttam for his business outlook and strategy. Thank you, sir.
Thank you, Sanjay. Namaskar and good evening, everyone. I hope you are happy and healthy. I will now provide you with an update on all our businesses, including assets and liabilities. FY '22, even though posing to be a challenging year across economic situation as well as geopolitics, it has grown to be a year of resurgence for Indian corporates post the difficult 2021.
Going into FY '23, India's businesses seem cautious on the impact of increasing energy prices and uncertain trade environment. However, given our high domestic consumption, improving on-ground activity, and India's GDP growth outlook, we are quite positive on the business outlook for the year ahead.
At AU Bank, we continue to proactively tackle the challenges, recalibrate our next steps with agility, and drive the market ahead of its performance to deliver across the business and financial metrics. As Sanjay mentioned, in our journey of over 27 years of building trust, AU Bank also celebrates its fifth anniversary as a small finance bank. And we feel a sense of pride in having weathered tough times in our early years and risen out of it with tremendous strength and character to become India's largest small finance bank. The infinite passion and hard work of 27,800-plus AU employees, growing brand love from customers, confidence of our esteemed shareholders have been the hallmark of these 5 years of banking for AU Bank.
Importantly, our asset growth was complemented with a robust asset quality with our gross NPA coming below 2% at 1.98% and net NPA reducing to 0.5%. This is a remarkable achievement given our GNPA was 4.3% same last year. Our total collection efficiency for the year stood at 106%. The normalization of our GNPA to pre-COVID levels has been in line with our narrative of deeper on-ground customer engagement and problem-solving approach.
As we [ march ahead ] into the next financial year, we continue to focus our efforts towards building a robust tech-led retail franchise in India by building a granular CASA portfolio, drive growth on existing asset products, strengthen the asset quality, investing in technology for AU 0101, innovate across newer products like cards and QR payments, and increased brand equity for AU Bank. Our Wheels business financed 85,000-plus vehicles during Q4 FY '22, amounting to a total disbursement of INR 3,667 crores, registering a growth of 25% year-on-year and 20% quarter-on-quarter. Total AUM of Wheels business is now INR 17,300 crores with an average ticket size of INR 3 lakhs. At the AUM level, 60% of the financing is for new vehicles, 38% is for used and refinance, and 2% is for 2-wheelers. The demand towards light commercial vehicles and passenger vehicles have been stronger than other segments.
In SBL business, demand is gradually coming back with Q4 FY '22, [ being the same ] disbursement equivalent to same quarter last year at INR 2,116 crores. Total AUM of SBL business has now reached to INR 16,524 crores, crossed 2 lakh MSMEs registering a growth of 15% year-on-year. Our Housing Finance business, who recently presented their views in the AU Insights session, saw strong demand in Q4 with a total disbursement of INR 673 crores, registering a growth of 54% year-on-year.
Total AUM of Housing business is now INR 2,654 crores across 27,000 dwelling units, registering a growth of 19% plus year-on-year. Bulk of this portfolio is also eligible for long-term low-cost NHB refinance, which further helps certainly to deploy more. Our Commercial Banking businesses, like business banking and agri banking, continue to do well and gain market positioning and establishing [ presence ]. Both of these businesses are granular. Working capital, term loans finance to MSMEs with average ticket size of sub-INR 1 crore and then against the balance sheet of MSMEs.
In Q4 FY '22, Commercial Banking business saw disbursement of INR 2,529 crores, a year-on-year growth of 104%, with most of the businesses eligible for low-cost refinance. Additional efforts have shown promising results with almost 40%-plus new customers added to the bank in Q4, coming through AU 0101, Video Banking, Credit Cards, and UPI QR codes. We are looking at our digital banking strategy to complement our physical banking strategy, and the physical model allow us to be better positioned for gaining a larger share of overall pie. Detailed individual business numbers are provided in the IR presentation further. At the ongoing AU Insight session, the leadership of various SBUs have been presenting their views and outlook, and I hope you had a chance to go through the same.
I'm quite happy with an exponential growth across our brand metrics, including awareness and consideration with our ongoing campaign. It's been heartening to know that people have been able to associate with the Badlaav Humse Hai campaign and acknowledge that AU Bank is trying to bring genuine badlaav in banking practices. We will continue to focus on building brand awareness and consideration. In the past few quarters, we have emphasized on growing our CASA balances and driving our deposits optimally to gradually reduce the overall cost of borrowings. Through targeted efforts, we delivered CA deposit growth of 57% year-on-year and 44% quarter-on-quarter and SA deposit growth of 156% year-on-year and 9% quarter-on-quarter. This enables the bank to maintain an optimal CASA ratio of 37% compared to 23% in Q4 last year.
All this also has reduced the overall cost of our deposits to 5.8% in FY '22 from 6.7% in FY '21. 64% of the saving account customers acquired in the year are active on our AU 0101 app and 77% of the current account customers acquired in the year are active on Internet and mobile banking. This also reflects the increasing preference of our tech-savvy customers to become digitally native. Rishi had spoken extensively in earlier quarters about the AAEDR framework that the liability franchise follows. AAEDR stands for acquisition, activation, engagement, deepening, and retention.
As we mature, we advertise engagement and deepening to transition AU Bank account as the primary account of the customer. To this end, we have separated our sales and customer service teams to pay greater attention to customer experience in branches. This has resulted in 71% of CA and 55% of SA customers regularly transact with us. Furthermore, 1.9 lakh unique AU debit cardholders transacted in Q4. Our debit card transaction volume has increased significantly crossing 4 lakh transactions in March '22, and spends have consistently been INR 100 crores plus in the last few months.
To increase the wallet share of our customers and embed them with the bank, we work on differentiated RM model, which aims to fulfill the needs of our customers and maximize lifetime value. This focused approach has resulted in our products per customer to grow to 1.7% for our SA customers and 1.9% for our CA customers. 62% of our current account and 47% of our saving account customers use 2 or more of our products. The delta generated in customer's AMB via this engagement hook is anywhere between 2 to 8 times, depending on the hook, as compared to a customer who is not engaged. We have expressed earlier that metros and urban markets will drive our liabilities growth. We currently have 184 branches in urban areas with 64% of them having opened in FY '22. 16 of these new branches, with an average vintage of 6 months, have already ramped up their deposits to INR 50 crores to INR 100 crores.
This reflects the encouraging response we have received in the newer urban geographies from high-quality retail customers and provides us the confidence to further penetrate and focus on these markets as we look to ramp up our deposit franchise. We continue to work with our partners to further cross-sell and engage the customers, be it ICICI Prudential, Future Generali for life insurance, and Aditya Birla, Care, Tata, and Chola for general and health insurance. On the investment side, our mutual funds' AUM crossed INR 100 crores this quarter, and we have close to 60,000 3-in-1 trading accounts through our partnership with Motilal Oswal Financial Services.
In conclusion, I would like to say that these are very exciting times for the brand as we achieve our 5-year milestone, knowing fully well that 5 year is a small dot or a blip in the journey of generations. Our efforts on urban-focused branch expansion, customer engagement, people capabilities, and constant digital innovations ensure that we are all prepared to scale the business. With comprehensive merchant solutions and a good foundation of current account and [ existing ] customer base, we are working towards scaling the current account deposit book sustainably this financial year.
With this now, I hand over to my colleague, Vikrant Jethi, for an update on collections and asset quality. I will meet you again during the Q&A session. Thank you so very much. Please take good care. Thank you.
Thank you, Uttamji. Good evening, everyone. I'll be sharing a brief perspective on asset quality. Business activities across sector have resumed normalcy, which resulted in better customer cash flows. We saw collection efficiencies north of 100% during the entire quarter. Average collection efficiency in Q4 was 108% compared with 106% in quarter 3. Our gross NPA reduced by 62 bps from 2.6% in quarter 3 to 1.98% in quarter 4. In absolute value, there was net reduction of INR 133 crores from INR 1,058 crores in quarter 3 to INR 924 in quarter 4. Net NPA reduced from 1.3% in quarter 3 to 0.5% in quarter 4.
We saw a gross reduction of INR 329 crores in quarter 4 from Q3 closing NPA of INR 1,058 crores, resulting in 31% resolution during the quarter, wherein 65% resolution happened through normal collection efforts and about 28% resolution happened on account of security enforcement, wherein there was POS loss of approx. 38%. Another 7% solution was on account of technical write-offs. Similar trends have been observed during FY '22. And as we had highlighted same in our last call as well, this clearly illustrates the secured and small ticket nature of our book as well as resilience of our borrower base.
If we further introspect current GNPA pool of INR 924 crores, we have enforced security on 8% of the pool and asset is in bank's possession. As of date, we have initiated legal recourse, either [indiscernible] or Section 17 on remaining 88% pool. On the balance 4% pool, we will be initiating legal recourse soon. In nutshell, all the underlying loans are granular and secure, and we expect recoveries or security enforcement in due course of time.
As we had communicated in our quarter 3 commentary, basis on-ground feedback, we have identified non-workable pool, where all collection efforts have been exhausted and bank has done a technical write-off of INR 23 crores in quarter 4. Here, collection efforts are being abandoned and future recovery may happen through ongoing legal proceedings. We would like to mention that we have so far done recovery of INR 1.18 crores from technical write-off of INR 62 crores done during the financial year '22. We shall continue to evaluate such non-workable pool in the future as well and take appropriate measures.
Out of total gross advances of INR 46,789 crores as of 31st March, 69% of book has originated after March 2020 and 93% of this book is current with only 0.37% of GNPA. The resilience of this book has validated our approach of underwriting and customer segment we cater.
On restructuring, as of 31st March '22, standard COVID restructured book stood at INR 1,180 crores, which is 2.5% of gross advances. Billing has started on 98% of the restructured book and 10% of billed book is NPA as of 31st March. Asset quality performance in the billed pool has been well within expectations. ECLGS gross advances as of 31st March '22 stood at INR 866 crores, and NPA numbers are in line with overall book. Bank is carrying provision of INR 653 crores against GNPA of INR 924 crores and has created an additional floating provision of INR 41 crores in the current quarter taking PCR to 75% against 51% coverage as of 31st December. Additionally, there is provision of INR 192 crores against standard restructured book. Furthermore, bank continues to carry contingency provision of INR 137 crores.
Against GNPA and restructured book of INR 2,100 crores, we now have 50% coverage, including floating and contingency provision versus 45% as of 31st December. This further strengthens balance sheet and makes us better prepared for any unforeseen events. Pertinent to note that bank has further tightened its provisioning policy starting this quarter, whereby in our secured book we will make 25% provision on 91 days, 50% on 181 days, 75% on 366 days, and 100% provisioning on 456 days. The policy on unsecured book is even more stringent. This makes -- this makes our provisioning policy one of the most conservative in the industry and will help us maintain higher buffers on an ongoing basis as there is absolutely no change in our expected credit loss assumptions. As we head into FY '23, while we keep our eyes on the risk on the horizon, we continue to remain cautiously optimistic having covered for all the stresses and some more.
Thank you so much for your time, and I now want to hand over to Aseem.
Thanks, Vikrantji. Margaret, we can move to Q&A now.
[Operator Instructions] The first question is from the line of Aditya Jain from Citigroup.
Good to see on the balance sheet strengthening measures. If you could talk about the thought process behind -- and the tradeoffs between allocating some provisions as floating and contingent, how do you decide the quantum of them? And what are the advantages or disadvantages of one versus the other?
Thank you for your kind words. So as per law also, we can't keep contingent provisions as an open item, right? We need to use it in somehow. So what we have decided is that let's strengthen our NPA provisioning policy and we'll keep the buffer out of that contingent provisions to the normal provision, so that is one thing which we have decided from this quarter. And we just do not want to use any of these flowing in P&L, right? So the balancing amount, if you see the overall provision for last quarter to this quarter, we really want to -- be similar that amount which is INR 1,043 crores.
So the balancing amount we have built in the floating prevision, right? And floating provision is again to cover any kind of future uncertainties and floating provisions can't be used on the basis of management. It has to be preapproved by RBI. So that is why we really wanted to be more sure about our whole consistency there. And so that's it, right? So we actually have reduced our overall NPA, overall risk-weighted assets considerably, but the provision amount remains same.
Got it. So there might be certain rules based on which contingent you might choose to reverse, but floating you will retain on a longer basis. And when you should choose to reverse, it will have to be with RBI approval.
Correct. Absolutely.
Right. On the liability side, so we've continued to see a steady reduction in cost of funds. From a spread perspective, going into next year, could you talk about the share of floating rate loans? I think a large part might be fixed rate, but just the share of floating rate loans per day on the book. And on the average cost of saving deposits and would you be open to increasing that saving deposit rate, if needed? And just your overall outlook on margins for next year.
This is 2 things we -- I already quoted in my statement that inflation and, of course, the interest rate cycle looks tough in this year. And we do not know how it will span out in whole current year. But as far as we are floating versus fixed is to be seen, it is around 25% is our floating, 75% is fixed, but tenure is very low. And generally, retail assets, like Wheels, SBL are generally done on the basis of fixed because we also charge on a higher rate. These rates are 15% plus, right? So -- and of course, as we move forward, we really want to build more and more flexible floating rate book, but -- like the Housing one and the Commercial Banking space. So once that share will go up, you will see our floating rate visible also go up, right? So that's the way we want to manage it. And what was the other question around saving account?
Yes. So saving account, the average cost of SA today, would you be open to think about increasing the SA rate going forward? The CASA accretion has been really phenomenal so far. Going into next year, maybe other banks start to increase the SA rate. We've seen some cuts through COVID. So [indiscernible]?
This is a question as of now. But CASA, we are already pricing around 7% on an higher bucket, right? And so, as a CEO, I don't want to get into that level of higher [ rate-ism ], but if market forces us, we will see it at that time.
Aditya, our current cost is 5.5%.
The next question is from the line of Ratik Gupta from Guardian Capital.
Yes. I just wanted to highlight was the treasury question. We can see that the revenue is growing at 10%, while the expenses have grown at a huge level in this quarter. So can you highlight on the same because we are trying to understand what could be the treasury operation that are yielding to high expenses in this quarter?
So the question is that treasury expenses?
Yes, the treasury expenses and towards the profit.
Treasury expenses, this is -- you are talking about the segmental results that we would have put out in the financials?
Exactly, yes. So we are seeing that profit has grown only by 2% towards this quarter and the revenue has grown by approximately 10%. And actually, I wanted to understand what could be the reason that we are seeing a very less growth? And what could be the major impact towards the treasury in the rising interest rate scenario?
So, Aditya (sic) [ Ratik ], if you see the interest rate in the last quarter kind of moved very sharply, especially towards the latter half of the quarter, right? And we are just coming out of a very low interest rate regime. So as we move forward, there will definitely be -- and that's what we have articulated in our presentation as well and in Sanjayji's speech that there will be some amount of -- we'll have to watch how the interest rate cycle plays out from here on, right? There could be -- while we have -- we don't really have a large [ MDM ] impact this quarter, unlike some of the other banks, but we'll have to see how it behaves going forward. So honestly, at this stage, difficult to comment.
Okay. My second question is how will the interest rate impact on the NIM over the going quarters -- in the upcoming like [ 3 quarters or so ]?
So we have -- we're starting our cost of money around 5.6%. And last year, we had a cost of fund overall basis was 5.9%. So still, we have some room available with us to manage even a cost cycle up by maybe 50 or maybe 75 basis points. That's point number one. And second, we have the ability to transfer this price to the end customer because my end customer is not rate sensitive, right? And we have also reduced over the years. So the kind of customer we deal in is a core market guy. And if the interest rate cycle goes up, the entire NBFC, entire that segment will also go up. So I strongly believe that we can protect our NIMs as we move forward in the range-bound interest rate cycle, of course.
The next question is from the line of Akshay Jain from JM Financial.
Yes, sir, this is Akshay here from JM. So I have 2 questions. One is on the CA growth. So CA has seen a sharp increase on a Q-o-Q basis. So any color on that? Plus is this a sticky CA and what are the levels we are seeing in April? If there is -- CA has rundown? How is it? First question is that.
Rishi, can you answer this?
Yes, yes. I'll take this. One second. So see, the car book is -- the March quarter is always a high profit car book. And if I were to give you a flavor, about 27,000 of our customers contributed to the growth of balances in the car book in the month of March, right? And many of these are -- almost 19,000 of these customers are small businesses and proprietorships. So typically, what we have seen is that average customers actually the balances in car go up every year-end. Like for example, last year, also the car AMB was INR 1,164 crores and the EOP was INR 1,632 crores. And the same thing holds true for this year also, where we have grown subsequently to INR 1,600 crores of AMB types.
So there is no hot money sort of if that was the question that we sort of shave in the business. And a good amount of money actually came from the contractor segments. So around INR 140 crores came from contractors who are typically NHAI contractors and the government releases money to them in the year-end. So money comes from them. And that is how this continues. I do expect that our Q1 overall car balances, we should be able to be close to the Q4 numbers by the time we end Q1 of this year. Because we substantially ramped up our overall car acquisition like what Uttam had highlighted. We acquired something like 6,500 to 7,000 customers every month. And along with our SBL business, we are very strongly positioned to address the merchant segment in the industry and build up on that. So that is the way we are looking at overall car book. And we believe that we will be able to grow significantly in the years to come.
So what percent of -- percentage of the car customers will have asset relationship, Rishi?
Currently, there are about 15% of the customers have asset relationship, but that is something that we are ramping up significantly. Like, I think what Uttam also mentioned, we have a large QR base, right? So 62% of our QR were active, 90% of those QR customers actually have rent count with us. And that really comes into our bank account. So that actually helps us in a big way with our car balances. And -- so the strategy going forward is that we're very clearly looking at the manufacturing segment customers, manufacturing and services customers separately from the merchant segment customer.
And as a merchant segment, customers are the one where AU has a very strong franchise and capability and which is where we are building our digital lending capabilities as well as the QR and cost-related payment solutions. So -- which is where I think our volumes will go up significantly. Even today, more than 80% of our car book is actually [indiscernible] in small businesses.
Understood. And lastly, on the AUM side. So there's an item others with an AUM of around INR 3,000-odd crores. So what will be the components of those others?
Akshay, that is mentioned in the footnote on Slide #37, sorry, 36. This is predominantly FD against ODs and treasury lending. So those things are included to manage the day-to-day liquidity.
The next question is from the line of Nidhesh Jain from Investec.
So firstly, on the growth, how should we think about growth in FY '23, '24. In the last 2 quarters, despite our cautious commentary, we have grown quite well at 14% Q-on-Q. So how should we think about growth in the next 2 years?
So next 2 years is difficult to comment as of now. But I think this year, the challenge remains to which is the interest rate cycles, and of course, we have the inflation. But as we already commented that what we faced in the last 2 years, it was more what we would -- we could face now. So I strongly believe that our deposit should grow in the range of maybe 30%, 35%, an asset in the range of 25%, 30%. And it's covering up a lot of these challenges. If the challenges never exist in coming time, then the growth can be moved, right? But the kind of demand we are seeing in our SBL housing and across spectrum, right, credit card, or the commercial banking. And so we are quite hopeful that this year, the growth can be as [indiscernible] levels.
Sure. Secondly, how is the experience that we have outside of Rajasthan in terms of asset quality and growth? And just a question on -- extension of that, is that assuming that we have same product -- products that we are operating over the next 4 to 5 years and same geographies we are operating, how large loan book we can scale up over the next 5 years, on the [ second geography ].
I think this is now old question that whether AU has the ability to grow beyond Rajasthan. We already demonstrated that liability, Rajasthan is not leading the pack, right? It's rather Maharashtra, and then led by Delhi, and of course, Rajasthan, right. So -- and the new book also like the credit cards, the merchant banking solution, it's very well diversified across states. And even in our wheel business, which remains the oldest business. We are seeing not much growth coming from the other states. And that is the advantage of a bank, right? Because banks generally don't -- bank does not get challenged because of geographies and all those things because generally people come and join and people have -- customers have lot of respect to the bank as a franchise, right. So I think we are not now very much worried about that we are Rajasthan born kind of an institution. In the coming time, you will see us in Pan-India operating for liability, for digital, for lot many things, right? So I think the whole data metric shows that we are on right course.
Any other question, Mr. Jain?
No. That's it from my side.
The next question is from the line of Sonal Gandhi from Nirmal Bang Institutional Research.
Most of my questions have been answered. So sir, just one question I had. If I heard you correct, I mean, 69% of our book is kind of AUM is coming post March '20. And the GNPA in that book is just 0.3%. So I wanted to understand what kind of credit cost should we expect in FY '23, FY '24, since the incremental GNPA, I mean GNPA on the incremental book is very, very low.
So difficult to comment. Honestly, so difficult. But I would only assume that the pre-COVID level, our whole GNPA was around less than 2%, maybe around 1.5%, 1.3% kind of thing and net NPA was around 0.5%. But I think now the whole policy has been changed. So difficult to comment as of now because it's very early days.
The next question is from the line of Renish Hareshbhai Bhuva from ICICI Securities.
So sir, just a couple of questions on the restructured book and on the [indiscernible] pool, okay? So we did highlight that the overall -- the book performance is in line with the overall book. But if you can provide some more color, let's say, in terms of, is there any geographical concentration which is not behaving as per the mark or, let's say, the collection efficiency in some of the pockets seems still lower than the pan-India average would be helpful, sir.
Vikrant, can you answer this?
Yes. So -- probably this question was asked earlier as well. We have not seen any trends which are [indiscernible] to any state. I guess, some [indiscernible] GNPA number is around 2% plus/minus [indiscernible]…
Sorry, sir, I'm not able to hear you properly, sir.
Is it any better now?
Yes, sir.
So probably the earlier question was also in terms of are we seeing any state-specific trends? There are no state-specific trends which are emerging. I guess, 25 to 30 bps here and there, plus/minus. I guess most of the states are in similar range. On the restructuring book also, I guess, we are seeing trends which are similar across [ states ].
Okay. So there is no geographical [ bias ] towards that?
Yes.
Okay. And sir, last question from my side to Sanjay sir. So with this, the 2 million plus, or in fact 2.5 million plus customer base, what sort of data analytics we run since we have a 30-plus products now? And what is the current product per customer? And what is, let's say, our plan to take it to maybe [ 2.5 million to 3 million ], what we are doing on that one, on the customer leverage side?
Yes, Uttam Tibrewal will answer this.
So on data analytics platform, we have now that, let's say, minimum quantity of data to analyze on when we have said build some models for that matter all our new businesses like credit card is largely working on scorecard model in terms of origination. Similarly, on our QR book, the way we are getting transactions, we have started lending to the customers, which is the transaction data. So those things are getting built from a scorecard model.
Second aspect, which you asked about product per customer. This number at this point in time is somewhere in the range of 1.3, 1.4. And with digital channels coming in and some of the digital-only products going -- getting adopted within our customer segment with -- well in last 8 months of operations, we see significant uptake coming in, in the current financial year or the upcoming financial year. Having said that, you are investing in our data analytics practice in terms of building data lake and corresponding analytical models further, and we'll continue to update in the due course of our communications.
So sir, any targets we have in mind, let's say, to take this 1.3, 1.4 to 2 or 2.5 within 2 years, 3 years or whatever?
I mean that would be too early to comment considering all those investments are currently being made. But we should be able to give some guidance in probably 3 to 6 months' time.
The next question is from the line of Pranav Mehta from Valuequest.
Congratulations on a very good set of numbers. So first question will be on cost-to-income trajectory. So this year, we have seen almost 500 bps increase in the cost-to-income ratio. And any other reason for it that we are investing in digital and other initiatives. I just wanted to better sense on that how will this ratio now trend going forward over the next 1 or 2, 3 years period. That is one. And secondly, if you can just give some sense on the time lines for this application of universal banking license? And how are you thinking about going for it? These are the 2 questions.
Pranav, yes. So I think the first -- we also facing challenge in our OpEx because everything has gone to a next level because of this inflation, right, whether it's salaries, self-related expenses, traveling convenience, phone. And also we -- generally, we are seeing not much cost around our OpEx now. But we believe that it is more of a supply issue, and it will get adjusted as we got this scale. And you'll also agree that we really worked only for 10 months this year, right? So we had expense for 10 months. We have expense for 12 months, but working of 10 months. So that has also impacted our OpEx. So for us, comfortable level is around 50%, 52% on an ongoing basis and plus 5%, 6% on our investment side, which we have shown in your presentation also.
And so this time this is overshooted by 4%, 5%, and it's above 60%. So it is above our comfortable level, but we will do lot many things this year to really be back on our -- the comfortable level, which is around 55%, 57% put together, [ move it ] together. So -- but this remains a challenging work for us because we've been in retail franchise. We need to do a [ lot but ] much things on the ground. So sometimes it's in your hands and that is not. But I'm not too worried, honestly, on a relatively high level because we have a better yield on our assets and our cost of fund is also getting -- it is in manageable level. So -- but we have [ delivered this ]. And I hope that we manage OpEx in our stated number for this year.
Your other question, which is regarding the universal license. So we are happy what we are doing as of now. We became the largest SFB. And our job as executive is to really play whatever is given to us. And presently, we are playing on SFB platform. And it is up to regulator to decide that whether they really want to make us universal or not. But of course, we have become eligible because the 5-year has gone on 19th April. So we hope that we perform like that, that regulators allow us to become universal, but we are very happy the way we are doing as of now. And in [ a year or 2 ] it happens, it really [indiscernible] for us.
The next question is from the line of Bhavik Dave from Nippon India Mutual Fund.
A couple of questions, sir. One, again, similar to the previous participant on the cost. Just want to understand how -- and I understand 40%, 50% of our cost is variable and the remaining is fixed. How do we control the cost when if growth slows down and it is like you mentioned, how do we focus our attention to controlling that cost, because around 10% of our cost is towards newer investments, which I think we will want to continue. But how do we control cost on the BAU, when growth is a bit challenging on the ground, if at all?
Dave, it's a little hypothetical question because we already faced that last year, right? Because of 12 months, our execution on business happened only for 10 months, right, and we have booked expenses for 12 months, right? So -- and the way the whole scenario is being built, especially in our market, which is a product, which is around wheels, SBL, agri, commercial, credit card, everything is [ filing ] so well. So there might be a slowdown. But I think our size is also not that much that it should affect us in near term. So -- and of course, there is a variable cost along with the fixed costs, that can be manageable, right. And we have shown in last maybe in 2021 to in the year 1 pandemic and last year too that we can manage our costs.
This time, it is because of inflation, right, which has been created something extraordinary on the balance sheet. We personally feel that as maybe next 1 to 2 years, it will settle down, right? Or it will get some kind of transformation in overall yield. So we have to wait for that. Otherwise, I strongly believe that AU is in good position in terms of managing any upward of interest rate cycle. And of course, it elevated cost of operations for the next 1 to 2 years.
Sure. So sir, is it fair to assume that like the 61 -- sorry, 57% for the year cost to income and this quarter was a little elevated. Do you think that the guidance that we have of like sub 55%, is that possible in FY '23? Or will it be like 57% will come to 56%, and then maybe slow down, or like come down? Is that the -- is that a fair way to go?
I believe so. I believe so.
Okay. And sir, second question is a little long term, which in the sense, which are the products that you're most excited about like going ahead next 2 years, where we have like incrementally our cost of funds are coming down and should be somewhere around this range or marginally higher if interest rate cycle is turning. Which are the products that you think can scale up and you're excited about? And any specific geographies where you are thinking that we are like generating or creating a right to win, like we have done for like 2, 3 geographies where we were historically present, including Rajasthan. Any other geographies which you're excited about more than -- more in for the next couple of years and the product that you're excited about?
I'm actually -- Bhaskar is here, but I can speak on his behalf, that wheels makes me most exciting product, because the overall, the pent-up demand and, of course, the overall change in fuel, how the Indian story is being built around the manufacturing and all those things. So -- and our size is very, very amazingly small. We are just around INR 17,000 crore of asset rise. So I strongly believe that, that book can grow north of 25% for the next 5 years. That's my own take.
Other than that, I think, I'm also good about housing, a very small base. We have started that 2 years back, in spite of pandemic, in spite of so much of lockdowns, that is also going well. So that is -- and I think the most important book and it can surprise us these are all commercial banking, which is around SMEs and MSMEs. I think that scale can help those businesses much more. So -- and of course, the credit card, all those businesses.
So Bhavik, honestly, I believe that we have a lot much on the platter, right? So hard to pick 1 or 2, but whatever I have said is [indiscernible], right? But generally, I believe that all our assets, the size, the market, the way we operate, and we hope seasonality around it is helping us to grow much better than the other competitors, right? In terms of geographies, I would say, we are well settled in around now 8 new states. But if you pick me -- if you ask me 1 state for next 5, 10 years, I would pick UP.
UP, okay. Interesting. Correct. And sir, last question is, on the asset quality. Is there like generally RBI does a yearly review, is that done any outcomes, anything to anything worth noting? Or is your business as usual?
Sorry, sorry, I'm not able to understand your question.
Sorry. So what happens is like in banks, like there's an asset quality review that happens yearly, which RBI generally takes, they undertake. Just wanted to understand, is that done for the bank, because you've not mentioned anything that means that there is nothing to report, right? Like there is no divergence or anything major that RBI has come out to it when it comes to asset quality. Is that a fair assumption?
Bhavik, yes, I understand. So we -- our inspection has been done up to March '20. So no, nothing [ to go before ] until now till that time. And now we are on the automated process. So our 99.9% of assets get classified on a real-time basis through an automated application, right? And that has been certified by current accounts by the auditors, the external auditors and that has also been verified by regulators.
The next question is from the line of Jai Mundhra from B&K Securities.
Congratulations on the anniversary of the bank. I have 2 questions. One is, if you can tell us the gross slippages without inter-quarter netting off for fourth quarter and maybe for FY '22?
For the quarter, that number is INR 292 crores.
Sure. And if you have the number, sir, for the financial year?
So that -- I think that would be around INR 1,440 crores. That will be also there in our Pillar 3 disclosures, but I think that number is around INR 1,440 crores.
Okay. And secondly, sir, on your wheels...
It's INR 1,442 crores.
Secondly, on your wheels segment, if you can bifurcate into top 4 or top 5 kind of a product, if possible, that would be very helpful. And then I have a follow-up question on that.
Sorry, your voice is a little patchy. Can you just repeat that question?
Yes, sir, I was saying, if you...
We seem to have lost his line. We will move to the next question in the meanwhile. The next question is from the line of Heet Khimawat from Emkay Global.
Just one question relating to the tax expenses in the quarter. So the tax rate, if I calculate for the quarter, it is around 11%, which has been around 23%, 22%, 25% in the previous quarters. So what could be the reason for the low tax expenses in the quarter?
Heet, so we got around [ INR 45 crores refund ], which was adjusted in this quarter, because mainly [ against these ] costs, which we consider by [indiscernible]. So it's related to a previous year... The tax rate for the full year is --? For the full year, tax rate is around 22%. And for this quarter, this is a difference because of this refund.
The next question is from the line of Dipen Sheth from Buoyant Capital.
So I just wanted to reconcile a couple of numbers. If you come to Slide 35. And if I try to reconcile that with Slide 6, okay. So it's on the liability side, obviously. So if you look at the lower left part of Slide 6 itself at 66% of our total deposits are retail deposits, right? And if we check at Slide 35, it says that 49% is the retail in the TD mix, not in the total deposits. Am I reading this correctly?
That's right. So when you look at the TD mix, it's 49% in the TDs is retail.
Right. So the TDs are INR 31,470 crores at the year-end, correct? And this 49%-51% is the breakout of that INR 31,470 crores.
So, Dipen, it's a data keeping question. Can you please e-mail to us and we'll get back to you.
Yes, sure. No, the reason I'm asking this -- yes, so the reason I'm asking this is that again, on the Slide 35 on the upper left side, the total deposit is INR 52,585 crores. So if I -- so the remaining bit there is certificates of deposits, correct?
No, no, no. So the first table on your -- I think Slide 34 actually you are referring as 35. The first table is total deposits.
Yes, 34.
The second table is the branch banking deposits. So it excludes the TD, which is INR 1,500-odd crores. We had given it earlier. And the last chart on that is the average monthly balance. So one, the first is end of period balance, the middle chart, and the last chart is average period balance for the month.
Okay. All right. And within the entire deposit mix, if I may ask [indiscernible] used to call, I don't know what the term to use, is it noncallable?
Yes. So noncallable is on term deposits, and while I don't have the exact number for March, but on an average, it is about 60%.
Rishi, do you have database?
On an average it is 60%.
I don't have it handy right now.
That's okay. I'll follow this up. No problem, sir.
The next question is from the line of Manish Shukla from Axis Capital.
Firstly, on floating provision, just wanted to get your thoughts on under what circumstances will you continue making it? And when and how do you intend to depend to these provisions if at all?
I mean, it's very clearly written by -- in the RBI regulation that in the event of something which is very uncertain and which is there to really manage the balance sheet at that point of time because it's not in our hand now it is in the hand of regulatory beside us that when can we use that. But of course, the situation like pandemic or situation like -- which is one of its own kind, we want to use that, but it's actually, it's a bit to regulator.
And incrementally will -- I mean, under what situations would you want to create more of floating provisions if at all?
So I think every quarter, we will take the call that how the whole scenario is being built around the businesses. And we really want to make our balance sheet more and more stronger. And we have the continuity provisions of INR 157 crores as of now. We have a coverage of 75% in terms of PCR. So I think we need to see the whole calculation. And of course, we hold this key asset around us. So based on that, every quarter will take the call, I thought [ it would be helpful, right ]. So -- but yes, of course, the endeavor is to really build more and more there.
And the next question is on spreads.
On the overall provision on the balance sheet.
Sure. Understood. The next question is on spreads. The incremental spreads have come down quite meaningfully for the quarter, and there's a large gap of almost [ 90 ] basis points between outstanding spreads and incremental spreads. Do you think the incremental basis spreads have narrow are bottomed out and it can improve from here on? Or we see our spreads staying where they are right now? I'm talking about incremental spreads now.
Manish, so obviously, as the situation has improved in the -- on the ground, the demand is also picking up. So initial demand definitely has coming from the commercial banking sector, which obviously gets -- where we directly compete with the larger private sector banks and hence it's a price sensitive segment. But as we move forward, definitely, as SBL also more and more demand comes up, we will -- and the interest rate cycle start going up. We have the ability to pass back that to our customers. So we'll start doing that going forward. What we have to also understand is the entire commercial banking book, or at least most part of it is also eligible for some low-cost refinance, which kind of helps us to maintain our margins.
Okay. Last question, what part of your book is voting rate in nature on the asset side?
I think Sanjayji answered that as the first question. The book is about 25% on the floating side and predominantly consists of the commercial banking and housing loan book.
We'll take one last question, which is from the line of Jai Mundhra from B&K Securities.
Sir, if you can bifurcate the top 5 product in the wheels -- INR 17,000 crores wheels portfolio?
Bhaskar, here. You're wanting to know from a manufacturer point of view or you're talking about where it is in the line of...
No, no, not from manufacturing, but from functional view, maybe taxi, UV or if you have any...
So we have close to 45% of our application is in personal segment. So that is cars, essentially cars. And then we have about 10% of tractor. We have 4% of backhoe loader. And then between small commercial vehicle, light commercial vehicle, we have that spread of between themselves, of course, of about 27%. So it goes in that order, I mean, it's less than 50%. Commercial passenger also consists of cars that's about close to 15%.
Data is already there, Jai, in the public domain in our AU insight session. It's available on our website.
As there are no further questions from the participants, I now hand the conference over to Mr. Aseem Pant, VP, Investor Relations, for closing comments.
Thanks, Margaret, and thanks, everyone, for joining us and for your support. Please reach out to the IR team for any further questions. Thank you.
Thank you. On behalf of AU Small Finance Bank, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.