Ladies and gentlemen, good day, welcome to AU Small Finance Bank Q1 FY 2027 earnings conference call. As a reminder, all participant lines will be in the listen-only mode, there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Prince Tiwari, Head of Investor Relations. Thank you, over to you, Mr. Tiwari.
Thank you, Renju, good afternoon, everyone, welcome to AU Small Finance Bank's earnings call for the first quarter of the financial year 2026-2027. We thank you all for joining the call this afternoon. On today's call, from the management side, we have our Founder, MD and CEO, Mr. Sanjay Agarwal; Executive Director and Chief Credit Officer, Mr. Vivek Tripathi; Deputy CEOs, Mr. Uttam Tibrewal and Mr. Yogesh Jain; CFO, Mr. Gaurav Jain; Chief Digital and AI Officer, Mr. Ankur Tripathi, and the IR team.
As we made the announcement today, Mr. Yogesh Jain has been elevated as a Deputy CEO of the bank, I take this opportunity to congratulate Yogesh Ji on his appointment. We will start today's call with a 15-20 minutes opening remarks from Gaurav, highlighting the bank's performance, positioning and outlook. We will follow the opening remarks with a 40-45 minutes of Q&A from all the participating analysts and investors.
For the benefit of all participants, that we can take everyone's questions, we would humbly request everyone to keep the number of questions restricted to two per participant and join back in the queue in case you have any further questions. For any data keeping questions, you can kindly reach out to the IR team anytime post this call. I now request Gaurav to share his opening remarks.
Thank you, Prince. Good afternoon, everyone, thank you for joining us for our Q1 earnings call. As we step into the 10th financial year of our banking journey, we do so from a position of strength. Our franchise today is more diversified, resilient and scalable, reflecting years of disciplined execution and clear strategic focus. Over this period, we have strengthened our balance sheet, built multiple durable growth engines, continued to invest in technology and talent while maintaining a sharp and consistent focus on risk management and governance.
These foundational strengths have enabled us to navigate evolving operating conditions with confidence and deliver strong, high-quality performance. Let me now take you through the key highlights of the quarter. Q1 was marked by heightened geopolitical uncertainty arising from the ongoing West Asia crisis. The Indian economy and the banking sector, however, continued to demonstrate resilience with healthy credit growth across segments. Liquidity conditions remain relatively tight, with heightened competition for deposits and elevated interest rates.
While we remain watchful of evolving external risks, these developments have not had any material impact on our business momentum, and our operating performance continues to be strong across key metrics. Deposits growth remained robust at 24% year-on-year, significantly ahead of the estimated private sector banking deposit growth of 14%. Loan portfolio grew by 23% year-on-year versus private sector banking growth of 17%, with secured assets growing by 25% year-on-year. Growth in unsecured businesses improved with 11% year-on-year growth and 5% quarter-on-quarter growth led by microfinance and personal loans.
Disbursement for the quarter was up 42% year-on-year, driven by continued strength in our core retail secured and commercial banking businesses. Asset quality remained robust, with slippages declining by 22% year-on-year to INR 798 crore, driven by improvement in the unsecured portfolio. Slippages in secured assets portfolio remained stable. PAT for the quarter grew by 37% year-on-year to INR 796 crore, driven by core PPoP growth of 41%. Net interest margin increased by 47 basis points year-on-year to 5.9%.
Core fee income grew by 33% year-on-year, driven by higher business volumes. Cost to assets ratio, excluding CGFMU premium, was 4% up marginally from 3.9% last year, driven by strong disbursement growth and investments made in distribution, manpower and technology over the last 12 months. Operating leverage continues to play out on underlying basis, and we expect cost to assets ratio to improve on a full-year basis. Credit cost, including CGFMU fee, declined by 54 basis points year-on-year to 0.8%, compared with 1.4% a year ago.
ROA for the quarter was 1.7% versus 1.5% in Q1 last year, and ROE was 15.6% versus 13.3% in Q1 last year. PAT for the quarter included an additional one-time provision of INR 23 crore from further strengthening of NPA provisioning norms in selected products. We continue to further strengthen our leadership with elevation of Mr. Yogesh Jain as Deputy CEO and appointment of Chief Risk Officer Designate and Head of Technology. These additions add to our domain expertise and reinforce our focus on enhancing risk management, strengthening technology capabilities, and building a high-quality future-ready institution. I will now talk about our tech initiatives.
We have aligned our technology agenda around three priorities: run, build, and transform, with focus on protecting and scaling the core franchise, accelerating digital adoption, and building a future-ready institution powered by data and AI. During the quarter, we made meaningful progress in embedding AI and automation into core business processes. We successfully rolled out our AI-enabled gold loan origination platform in a controlled environment. A mobile native version is now live, and we will start extending this to branches in a calibrated manner.
On the same agentic AI platform, build-out of loan origination journey for mortgages will also be undertaken. AI-led transformation initiatives are underway across vehicle finance, personal loans, credit cards on the existing platforms, whereas commercial banking journey is being built on a new platform with a focus to improve turnaround times, customer experience, and productivity. We also launched a unified lead management platform for facilitating lead aggregation, filtering, and dissemination of leads.
This platform is integrated seamlessly with AU's native lead management system and is expected to facilitate greater customer acquisition, increase cross-sell and upsell by improving lead conversion and channel efficiency. Our digital platforms continue to scale well, with more than 90% of the bank's transactions and service requests now being processed through AU 0101. We also rolled out an enhanced UPI payment interface on this platform during the quarter. On the customer service side, we are leveraging AI voice bots to deliver faster and more consistent experience across 11 languages while enhancing workforce productivity.
We continue to deepen use of data and analytics to drive growth and efficiency. Key initiatives include deployment of analytics-led scorecards across secured and unsecured portfolios, scaling of propensity-based models that has increased pre-approved PL offers by more than 3x, and leveraging AI-driven risk assessment tools that now automatically resolve 70% of AML alerts. We are also live with our Customer 360 initiative, building a single enterprise view of customers to enable more personalized engagement and better business outcomes.
Overall, our technology investments remain focused on delivering measurable business outcomes today while creating a scalable foundation for sustainable growth and long-term differentiation. Now, let me give some color on each of our businesses. First, on deposits. Our deposit base now stands at INR 1.58 lakh crore, growing 24% year-on-year and 3.3% sequentially. CASA deposits grew 22% year-on-year and 4.7% quarter-on-quarter. CASA ratio improved marginally on quarter-on-quarter basis to 29%.
As mentioned last quarter, we have organized our liability franchise into four verticals. Branch banking, which accounts for 60% of deposits, government and interbank deposits team, which account for 21%, commercial banking and wholesale deposits, which contribute 7%, and financial institutions group, which accounts for 8% of total deposits. Branch banking focus is on garnering granular retail deposits while the other three verticals are deriving solution-led deposit growth, leveraging our capabilities in CMS, transaction banking, and FX.
During the quarter, we added 16 new deposit branches and remain on track to add another 100+ branches this year. New CASA account acquisition was strong with 80% year-on-year growth in premium accounts. We further expanded our remittance offerings, keeping in mind the convenience of our customers with international banking needs. Retail customers can now send and receive money internationally at transparent exchange rates with zero forex margin and zero bank charges, a first of its kind offering amongst private sector banks in India. Within bulk deposits, our focus remains on non-callable deposits to enhance stability of our deposit book.
Total stable deposits, which include CASA, retail TDs, and non-callable bulk TDs, remain strong at 79% of total deposits. Overall, we remain highly focused on further strengthening our liability franchise with ongoing investments in products, distribution, and branding. Now moving on to our assets franchise. Q1 saw continued strong growth in our asset franchise in a seasonally softer quarter. We are seeing a steady increase in business contribution from the newer geographies where we've made significant investments in building capabilities over the last one to two years.
Retail secured assets, which includes wheels, mortgages, and gold loan, forms 67% of our portfolio and grew 23% year-on-year and 4% quarter-on-quarter. Within retail, our wheels book grew by 28% year-on-year and 5% quarter-on-quarter to reach INR 48,600 crore, driven by strong demand in the new vehicle segment and increasing traction across newer geographies. Gold loan business grew by 130% year-on-year and 15% quarter-on-quarter to reach INR 4,500 crore. We initiated gold loan product across 400+ existing branches during the quarter, taking total gold loan distributions to over 1,300 branches.
Our mortgage business comprising micro business loans and affordable housing grew by 12% year-on-year and 2% quarter-on-quarter. Disbursement in mortgages picked up with 28% growth year-on-year in this quarter. Moving on to commercial banking. Commercial banking business grew 34% year-on-year and 6% quarter-on-quarter to reach INR 32,800 crore, with broad-based growth across our verticals. Our focus continues to be on making commercial banking business progressively more self-funded through Current Accounts and increased penetration of transaction banking, CMS, trade, and other relationship-led offerings.
Transaction banking and Forex business has started to gain momentum, with income growing 46% YoY and 8% quarter-on-quarter. Moving on to unsecured businesses. Our inclusive banking franchise, which primarily includes MFI, grew by 15% year-on-year and 5% quarter-on-quarter. Collection efficiencies continued to hold up well at 99.5% and 96% of the book is now covered under the CGFMU guarantee scheme, which provides an additional layer of comfort. Our digital unsecured portfolio grew by 3% YoY and 7% quarter-on-quarter.
This was led by personal loan business, which grew 24% year-on-year and 19% quarter-on-quarter from a low base, driven by increased focus on cross-sells. The credit card business also saw marginal growth with new card issuances crossing 1 lakh mark in Q1. Moving on to P&L. As mentioned earlier, our profit after tax for Q1 grew by 37% year-on-year to INR 796 crore. Net interest income increased by 32% year-on-year on the back of strong growth in loan portfolio and 47 basis points YoY improvement in margin. Sequentially, margins declined by 7 basis points to 5.9% due to reversal of certain seasonal benefits which aided margins in last quarter.
Cost of funds remained broadly stable at 6.48%. Increased cost on Savings Accounts and wholesale funding was offset by residual repricing of retail term deposits. Core other income grew 33% YoY, driven by strong business volumes and higher credit card issuance. Forex and trade-related income continued to scale up from a low base. Operating expenses for Q1 increased by 24% year-on-year, driven by strong disbursement growth and investments made in distribution, manpower and technology over last 12 months. On a quarter-on-quarter basis, operating expenses declined by 1%. Our focus continues to be on driving tech-led operating efficiencies and overall overhead control.
Provisions decreased by 13% year-on-year on account of normalization in unsecured businesses. On a quarter-on-quarter basis, provisions increased by 38% due to seasonal trends. Provisions for the quarter included an additional one-time impact of INR 23 crore from further tightening of provisioning norms in selected products. To conclude, despite a volatile and external environment, momentum across our deposit and loan businesses remains strong, underpinned by the strength of our diversified franchise, distribution and underwriting discipline.
As we progress on our growth journey, our priorities remain clear: accelerating deposit franchise expansion, strengthening core lending businesses, improving operating efficiency by leveraging technology and AI, and maintaining disciplined risk management. While we remain watchful of the macro environment, the investments we have made over the last few years in our people, processes, products, technology and distribution provide a strong foundation to sustainably compound at two to 2.5x of India's nominal GDP growth rate, delivering consistent, predictable and long-term value to our shareholders. I thank our teams for their dedication and all our stakeholders for their continued trust. With that, I'll now hand over to Prince for Q&A.
Great. Thank you, Gaurav.
Yes.
Operator, we can open for Q&A.
Thank you. We will now begin the question- and- answer session. Anyone who wishes to ask a question may press star and one on your touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question comes from the line of Jayant Kharote with Axis Capital. Please go ahead.
Thank you for the opportunity, and congrats on a great set of numbers. The first question is on the slippages. If you could give some color on this quarter slippages. I see slight inch up in commercial banking NPAs QoQ. If you can call out what is the nature of the product over here. That is the first question. I'll follow up with the second one.
Hi, Jayant. This is Vivek. Q4 is always a very, very seasonally strong quarter for us. I think right comparison would not be quarter-on-quarter. Right comparison would be year-on-year, the Q1 last year versus Q1 this year. In all asset classes, be it secured retail asset, be it our credit card PL, be it microfinance. Obviously, we had a great recovery in both the unsecured products. Even if you compare year-on-year basis, commercial banking slippages are lesser. At a bank level, there is almost improvement 150 basis points.
Understood, sir. If you could tell what was the product that seasonally QoQ moved in commercial banking?
It's typically SME book, which is a business banking book, which will have some bit of upstick in the Q1 and then it slows down.
Understood. Thank you, sir. Sir, the second question is on the ECL framework. I believe our timeline on the application of universal license is around February-March, which means we will enter the next year on the new ECL framework, or we'll have to transition there. We are seeing an increase of around 12 basis points- 20 basis points on steady-state credit costs for banks. Given we've had some books or some products having some cycles in recent years, can we see a higher impact on our steady-state credit cost under the new framework?
Jayant, for us, it will be difficult to quantify at this moment. We are refining our LGD and PD models. We are working with external agencies. Given that the kind of provisioning we carry in Stage III assets, it gives us enough comfort. However, the final output will depend on what kind of policies we adopt for accelerated provisioning or for write-off policies, because the moment we implement ECL, all those parameter changes. It will be a Board-approved policy. As we speak, at this moment, there is a greater comfort from Stage III, which should cover up Stage I, Stage II incremental provisioning.
That will be one time, no?
Even on an ongoing basis, Jayant, Prince here. Our provisioning policy right now is much tighter than what the regulatory requirement is, to that extent, we feel comfortable given the current policy. In case there is a change in the policy, obviously we'll come back and update you.
Jayant, our retail secured asset, and even on the commercial side, it's largely secured. Our LGDs are pretty low compared to what the industry would look like. We are very comfortable in that way.
Definitely, sir. Secured book will definitely be helpful over here. Sir, this INR 23 crore is regarding any product tightening or general buffering up of provisioning?
It was just more of an alignment of all unsecured products, be it credit card, MFI, and PL on the same lines. There were differentiations. We just aligned them all. That's it, in terms of the provisioning policy.
Great. Thank you, and congrats on a great quarter, especially on the margins. Thank you.
Thank you, Jayant.
Thank you.
Thank you. A reminder to all the participants that you must press star and one to ask a question. Next question comes on the line of Renish Patel with ICICI. Please go ahead.
Hi, sir. Congrats on a good set of numbers. Just two things. One, I am referring to slide number 30. In digital unsecured book, it appears that our risk-adjusted yields are actually lower than retail secured assets. Just wanted to understand how the pricing policy works for specifically this product. And if you also can share profitability in this product would be good. Of course, I know you don't share product-wise profitability, but maybe directionally, if you can just give us some trends in this specific book would be helpful, sir.
Hey. Hi, Renish. Prince here-
Yeah.
...both these businesses, as you know, credit cards as well as PL, is relatively newer businesses for us and still just coming up the curve. I don't think it's the right metrics right now to look at what's the risk-adjusted yield there, because-
Okay.
...credit card went through a cycle, we know that, and we've just started to regrow the PL business as well as the credit card business. I believe that right now it's probably not a true reflection, if I would say that. Let these businesses get built out, because they are currently loss-making. I mean, credit card is, PL is obviously breakeven.
Okay.
Give us some time for these businesses to evolve before we can actually talk about either the product-level ROA or the profitability in terms of risk-adjusted yields.
Okay. Got it.
These are-
Yeah.
Yeah. These are strong cross-sell businesses right[inaudible] liability franchise-
Correct.
Yeah. Just to add, PL, as Prince said, PL is obviously profitable with good yields. Specifically on the credit card, because of the tightening of underwriting norms that we've taken sort of, say, 18 months back, the percentage of revolve book has come down. That's why the yield on credit card book is a bit subdued, and that's why you see the weighted average yields at those levels.
Levels are low. Okay.
Yeah. As Prince mentioned.
I was just looking at the broader yields. In retail secured assets, we are having 14%, in digital and secured also we are having 14%, the gross NPA in this book, obviously, the unsecured nature having higher gross NPA. Hence, I am assuming there will be higher LGDs as well. I was just thinking on risk-adjusted basis, the yields are definitely lower than the secured book. I was just wondering on that part.
Yeah, Renish, these businesses, credit card as you know is a work in progress for us. We have taken a lot of actions over the last 12, 18 months. Give us some time, and you will see the underlying profits pools emerging in our unsecured businesses over time.
Got it. My next question is on the margin trajectory. Obviously this quarter, it has been moderated a bit and in line with what we have guided in Q4 as well. How should one think about next two to three quarters trajectory on the mean side?
Renish, as we've mentioned in the previous quarters as well, it's always difficult to predict margins because of multiple moving parts. I don't want to give you any sort of directional guidance on that-
Okay.
...but what we know is cost of fund has effectively bottomed out, as we mentioned last quarter as well. We've taken some increase in both savings account and deposits rates. You will see that line being stable to maybe increasing a little bit, depending on how the rate environment evolves from here. On the asset side, our yield will continue to reflect the mix of assets as we go forward.
Got it. Okay. That's it from my side. Thank you, team.
Thanks, Renish.
Thank you.
Thank you. A reminder to all the participants that you may press star and one to ask a question. Next question comes from the line of Nitin Aggarwal with Motilal Oswal Financial Services Limited. Please go ahead.
Thanks for the opportunity. Congrats on good set of numbers. I have two questions. One is on the asset quality, touching upon the unsecured business growth wherein we have started to see some recovery now, MFI growth of almost 5% QoQ. How are we looking at this to sustain over the year? It's a strong start it looks like. Also, if you can comment around the vehicle business also, and mainly around the CV as to how is the credit environment shaping up on that side.
Hi, Nitin. This is Vivek here. I think microfinance business had a lot of subdued quarter-on-quarter industry-wide deceleration, I would say, and the overall degrowth in the book. I think post MFIN guardrails, industry has actually reached to a stage where a lot of discipline has come in in the field, and that's the reason you would see more and more players falling in line. In the overall industry, there is a positive traction. In fact, MFIN is also projecting about 17%-18% kind of a growth. We are just following that, and that's visible also on the field.
As far as on the asset quality is concerned, numbers are holding up. In fact, the Q1 collection efficiency, typically, which has a seasonal dip, could sustain to the tune of 99.5%. The difference is about 20 basis points from the Q4. If you look at last year Q1, was very different, right? On top of it, 96% book is secured, so it gives us a lot of comfort that even if there is some event and there is some slippage happen, you have CGFMU coverage in this book. On the vehicle side, we have now strong distribution in South, we have a strong distribution now in U.P. and newer states in East.
That is now giving us the additional volume, and we are very confident that the kind of customer segment we operate, we understand. There is a good trajectory. For us, on the asset quality side, more or less it remains what it is typically in Q1. There is no abnormality. There's no indication to suggest that in any of the part of this book there is a heightened stress or any slippages which is abnormal to a normal sequential, I would say, quarter, which typically happens over the period. Right? Nothing unusual in the book. It gives us a lot of confidence to accelerate the growth on the inside.
Got it. On the CGFMU part, when you said 96% is under that, do we plan to lodge any claim or is something under process for all the losses that we have taken last year?
It's an annual process. I think it's a pool-based coverage. 2025 book was covered in 2026 and will also be covered in this year. The 2026 coverage, whatever we have taken for last year, we can claim. It's a six-month seasoning post NPA. Post that, you can lodge the complaint. That's a cycle, right? Typically, by end of Q2, whatever crystallized NPAs you have for FY 2026 pool, you will lodge the claims. That would typically be realized by mid of December, by end of December, right?
Right. Any color on how much this number can be?
It will be part of the overall NPA only, Nitin.
Just to share some broad contours. As Vivek said, 96- odd % is covered, right? Similar percentage of SME is covered, some of our NPAs are coming from more vintage pool, pre sort of CGFMU coverage. Right? Coverage of CGFMU on the GNPA portfolio will be slightly lower.
Okay. Got it. One small question around the CD ratio now. I see that we have been giving two CD ratios for a long time, ever since this metric came in focus. Which CD ratio will you look at to optimize the balance sheet? If I adjust for refinance as reported, there is a lot of liquidity that is still there, the reported number may look high. Which internally you look at to see to it that the balance sheet is fairly optimized?
Yeah. Hi, Nitin. I think we are very comfortable with our number, right? CD ratio, ex refinance is below 80%, it's 88%. We don't look this number to optimize anything, right? We look this number for our sustenance, right? How much we should raise deposits, how much we can do the loan. We are very comfortable in this kind of number from last maybe now three to four years, actually. Not much to read around it, in my opinion.
Okay. Sure, sir. Thanks, Sanjay and wish you all the best.
Yeah. Thanks.
Thanks, Nitin.
A reminder to all the participants that you may press star and one to ask a question. Next question comes from the line of Akshay Jain with Autonomous. Please go ahead.
Hi, sir. Thank you for the opportunity. My first question is on the 1.8% ROA target. If I understand your comments from the call, you are practically guiding for stable NIMs. Is it fair to think that incremental ROA improvement will come only from, say, OpEx and your credit costs also seem to have bottomed out. Is it right to say that?
On this, we haven't, on the NIMs, we haven't guided for stable. There's no guidance on NIM. What we are saying is, we see scope for improvement both on the OpEx and credit cost lines vis-a-vis full FY 2026. Those two line items will take us to our guided range.
I think this quarter, I think other income also has not up to the mark. I believe other income should also come in next six-to-nine-month period. Largely, we are 1.7%, honestly. We are not at lower number. We are just looking at 10 basis points from here. Maybe everything can contribute. Maybe 2 basis points from credit cost, 2 basis points from other income or whatever. It's not that big difference from our stated target and the performance.
Okay.
That's why we don't want to comment much around our ROA because it's not far away from our desired number.
Understood. Number two, coming back to the ECL question. We have most of the banks providing some estimate of the one-time transition impact as well as the steady state impact on the trade cost impact. It will be nice if you can give something around this so that we can build something in our numbers.
Akshay, Vivek here. I won't be able to comment. I'm sure that banks will be providing. For us, working it is at a little preliminary Stage I. Second, as we speak, what I can tell you confidently that historical trend of our LGDs and PDs, especially LGDs on our asset classes, are very, very low. That gives us enough comfort to say that the impact would be neutral. We don't expect much in terms of any additional hit on the balance sheet.
However, I think closer to maybe end of Q3 or something, we would be in a better position to tell you, because by that time we will have a more working models because we've hired a dedicated team. There is a dedicated external agency which is helping us to build the ECL models. I think it's too premature to comment on it. We'll definitely give you some colors by end of Q3.
Understood, sir. Thank you. One more thing on the, I was reading one of your comments, you mentioned that disbursements have partially benefited from newer geographies. If you can shed some light on how newer geographies are contributing to incremental business and which segments are they contributing to, and how should we expect growth from newer geographies incrementally.
I think on a design, it's difficult to give you the exact data, but on design principles, we are more of a north and a west franchise till maybe a year back or two year back. Because of Fincare acquisition and then expanding more into east also and going deeper into states like U.P., Bihar. We are largely now a pan-India franchise. We are focusing that our next 10-year growth should come from all part of the country. We are building up the south zone, west zone, north zone, east zone, central zone. The idea is to build more distribution across country and for every product.
The retail asset, we have wheels, we have mortgages, we have gold loan, MFI. In commercial banking space also, we are running four, five kind of book. We have personal loan, consumer finance, credit card. I think there is, I would say, a huge opportunity for us in next 10 years that once we become a full-fledged India franchise, I don't think that the growth which we are predicting that AU should grow at least 2x or 2.5x our nominal GDP for next 10 years is quite achievable.
Every state, here and there, is now contributing because if I want to have some data, we'll show up in southern market now because we are there from last three years. Or maybe from U.P. also. Macro finance, you know that it's a widely held book cross-country. Some of the part are coming back. I think it's a mixed product, mixed states, but we are seeing lot of traction from our newer geographies.
Thank you, sir. Just maybe if I may, a last question on NSFR. While I don't see the latest quarter NSFR, but if I look at the history of NSFR, say pre-2024, it used to be in the range of 115%-120%+ . However, for the past few quarters, I can see that it has dropped to 108%, 109% levels. What's driving this?
I think that's the range we operate. That's the range we operate, Akshay.
Our LCR range is around 115%-120%, and our NSFR typically is about 105%-115%. That's where we range.
Okay. Understood.
Yes.
Okay, sir. Thank you for all the answers. Thank you.
Thank you.
Thank you. A reminder to all the participants that you may press star and one to ask a question. Next question comes on the line of Ashlesh Sonje with Kotak Securities. Please go ahead.
Hi, team. Good evening. First question is on the renewable energy book that has grown quite well at some 120%+ less YoY. Just want to know, who are you lending to? Is it the project developers or the component manufacturers in this supply chain?
Yeah, hi, Ashlesh. Vivek here. The renewable energy book is largely concentrated around developers, and it is specifically KUSUM-C component, KUSUM-A component. These are the two areas, and typical project size is between 2 MW- 5 MW, and that's the kind of project these guys putting up. We started three years back, started focusing on Rajasthan, and then at later stage it grew from Rajasthan to Gujarat and Maharashtra, bit of MP and couple of other states. It's a government-supported initiative where there is an incentive to developer as well as to the discounts. We found out that the PPAs in this segment are much attractive as well as there is a capital subsidies to the developers, which makes the viability of projects more. It's focused on that.
Understood, sir. Thank you for the color. Just to follow up on the earlier discussion on PL also, the growth in that business has also recorded quite well. If you can shed some light on what is the customer profile here in terms of entity or salaried, what is the ticket size, and on the sourcing side, how much would be from, let's say, cross-sell to existing liability customers, asset customers, or open market?
Ashlesh, Vivek here again. This book is 100%, as of now, is towards my existing bank customers. Majority of them would be liability customer, some of them would be asset customers. It is basis the existing relationship, and basis we run scorecard, we run the transaction card, scorecard, and basis that we derive the pre-eligible pool, and we run the PA offer basis our analytics on it. Incrementally, yes, we do want to source new to bank customers, but that share is very small and will grow gradually. So far, if you look at existing book, 99% would be my eIDV customers.
Understood, sir. Third one is on the appointment of Yogesh sir as Deputy CEO. Now that this is done, how do you expect to share responsibilities at the very senior leadership level going forward?
The whole idea is also to build a very sustainable bank. It's very much required to create a leadership at top. I'm leading this bank from last now 10 years, and I know that I'll not have infinite years. I think that process is already started, and the idea at a board level is not to rush at the last moment. Let's create a leadership at a different zone. Like Vivek is on the call and of course, Yogesh is also on the call, Uttam is on the call. When all three gentlemen are having EDs and Deputy CEOs positions.
We'll keep building up leadership positions because bank is very wide. Bank functions are very wide, are very complex, and there has to be a leader who can handle those challenges and can drive bank through the whole cycles. I'm very happy that AU is blessed that they have so many committed and ownership attitude people, and they are long in the bank, long in the institution. Yogesh is 16, 17-year-old guy.
Vivek is with us from last 12, 13 years, Uttam is last 20 years. Many more. You will see lot many names coming up in next five years. That's the way I personally looking towards AU in that sense that AU should be run by professional leadership in times to come and remain forever kind of banking mindset. I think as of now, Yogesh will be taking care of tech and lot many other functions which board will assign him in times to come.
Understood, sir. If I can squeeze in one small one. If you can share the average cost of SA deposits and average cost of term deposits on the book. Thank you. Those were all the questions I had.
SA is what? Less than five?
INR 5.
INR 5.
It is about INR 5.05 on the savings account side. TD is largely around INR 7.25, something like that. Yeah.
Okay, sir. Thank you.
Thank you. Next question comes from the line of Anuj Singla with JP Morgan. Please go ahead.
Yeah. Good evening, team. Thank you very much for the opportunity and congratulations for a strong set of numbers. Three questions. The first is on the unsecured growth. After a long time, we are starting to see revival there, and I think on a sequential basis there has been a strong pickup. Can you talk about if there are any targets we have set for ourselves or given the momentum, where can this portfolio ramp up maybe over the next one to two years?
Look, on the MFI side, it is difficult to give you any guidance because as you know, the industry has just started to revive after almost six to eight quarters of de-growth. Right? We will see how this sustains over a period of time, but we expect to continue growing this book because it is important from a PSL perspective. Right?
Overall, we use a 10%, right, of our book.
MFI? Yes.
Yes.
Overall, as a component, we have publicly announced that it could go up to as high as 10%.
10%. Yeah.
Yeah.
Our requirement of MFI is also now 10%. We don't have any other agri book as such. Right? We want to do our small marginal farmer obligation through this book. Now the book shape is completely changed because of this guarantee coming in, well-diversified. Team is very capable, honestly, because I think the Fincare gave us this ability, a ready hand that this team was available, very experienced team. We are very comfortable as of now. We are not seeing this book as which will increase our ROE and whatever. This is more about doing your obligation done and having that inclusion piece in place, and also have your own decent ROA on this book.
Okay. Got it. The second one is on FCNR side. We understand that U.S. leverage is becoming a constraint for many of the players. Can you talk about what target you are looking for in the FCNR side, and what kind of costing does it compare with what you are borrowing in the Indian market on the wholesale side? How does it impact the cost of funding, if at all?
Overall, I think you are spot on that we are not able to get the leverage for our customers. We actually have increased our FCNR rates to now 7.5%, if I am not wrong. 7.4%?
7.4%.
7.4%?
Yeah.
We believe that because of our brand, because of our acceptance, we will raise some sort of money. We are not targeting now a specific one, because if you do not have a leverage, it is difficult to convince the customer. I think overall, it has been very good for the banking. If Indian banks get INR 70 billion-INR 80 billion in this bucket, overall, I believe the liquidity should improve. If liquidity improves, the cost of money will come down. Right. Overall, I believe we may not be directly benefited out of it, but we might have the overall benefit because of industry initiative. Second, I think we will be raising some money because of-
OFC.
...OFC and all those other route. Right.
Okay. Got it. Sir, one last data keeping question. What will be technology expenditure as part of our total OpEx?
It's close to INR 1,000 crore.
Sorry?
This year around.
12%, 13%.
Okay. Great. Thank you. Thanks again. Have a good day.
Thanks.
Thank you. The next question comes from the line of Pritesh Bumb with DAM Capital Advisors. Please go ahead.
Hi, sir. Good evening. Congrats on the great set of numbers. Just a few questions. The employee base has declined after a long time. Is that an outcome of any efficiencies like AI, capacity building is now paused? Or is it like, after Fincare's reorientation, we've paused hiring? So any thoughts on that?
Yeah. You're absolutely right. You're saying about the employee count?
Yes.
Yes. Starting in May month. May month was the first month when we actually decreased our manpower from the April 1. That is one-off, honestly, because I would say the back-end people, we are not growing at all because we believe operation, accounts, finance, these things have been taken care of by AI more. As we expanding in newer markets, newer geographies, newer products, you might want to hire people for front-ending. Right? I think there is a clear-cut benefit because of AI in terms of count of people, and of course, to manage the risk also.
To build the scale and to manage the scale, you should really see risk through that, and AI is helping us a lot there. It's a very, I would say, amazing development in banking. There's a second benefit is that it can allow people to work from now home or anywhere, which was not so easily done in banking. I think that's the second advantage we are seeing it. Overall, I'm very happy that there we are understanding AI, adopting AI, and using it.
Sure, sir. Second question was on the MFI side. I think a few years back, we had a thought process that the MFI business will now structurally be a 3% credit cost business. Any change to that thought as we are going into now a mature cycle? Are we still building the credit cost of 3% despite the support?
I think 3% when we said it was three years back when we acquired Fincare. I think after that, this guarantee came in, the entire business model has gone through a change. Now we are building up cost around guarantee every year. I don't think now 3% is the right optics. It may be the credit cost around The guarantee of course, whatever we left out, right? 2.5% ?
Yeah.
I think overall it's in the same range, the contour has changed, the shape has changed, the form has changed. Instead of building up the buffer, we are securing protection on that book, right? That's a similar thing, right?
Yeah.
You pay guarantee cost now, right?
Yeah. Sure. Last question was on the gold loan business. Can you just give out some main data points like LTV, yield? We have seen that the market is not adding that much of tonnage or customers, but how is that business for us in terms of any new incremental customers coming in or out?
Yes, apart from microfinance business, when we acquired Fincare, the gold loan business also came as their expertise, right? Fincare had a lot of rural distribution because of microfinance branches, and it had the capability to do gold loan business in these certain geographies. What we did that we scaled up that across Northwest region where AU had a strong distribution. Right? Overall, if you look at, for us, it's a scaling up from a low base, and that's the reason number looks very attractive in terms of when you look at percentage of growth. The distribution is already in place.
There is a whole ecosystem, which is there a valuer, there is a operations team, there is a origination team. Right? All that is playing out. Right? It's a very, I would say, very simple business that way that you have to manage the fraud risk. The rest of the risk is the product itself manages. Ours is not a high-ticket business volume. Majority of book is less than INR 5 lakhs, right? The average ticket size is somewhere around INR 2.5 lakh of the whole book. Most of it is today more than 80% is a rural book. 20% The book portfolio IRR is about 15.5%. You can just assume it's more of a rural book with a lower ticket size. It's a very granular book.
Thank you so much, and all the best, sir.
Thanks, Pritesh.
Thank you. Ladies and gentlemen, as there are no further questions, we have reached the end of question and answer session. I now hand the conference over to Mr. Prince Tiwari for closing comments.
Thank you, Renju, and thank you everyone for joining the call and for asking your questions and for all your support. In case anyone has any further questions, you can kindly reach out to the IR team. This is Prince Tiwari on behalf of AU management, signing off. Thank you so much.
Thank you.
Thank you. On behalf of AU Small Finance Bank, that concludes this conference. Thank you for joining us. You may now disconnect your lines.