Latest news with #CGFMU
Yahoo
12-05-2025
- Business
- Yahoo
Suryoday Small Finance Bank Ltd (BOM:543279) Q4 2025 Earnings Call Highlights: Navigating ...
Release Date: May 09, 2025 For the complete transcript of the earnings call, please refer to the full earnings call transcript. Suryoday Small Finance Bank Ltd (BOM:543279) achieved a significant milestone with both deposits and advances crossing INR 10,000 crore. The bank's gross advances increased by 18.5% year-on-year, reaching INR 10,251 crore. Retail deposits now constitute 81.1% of the total deposit base, indicating strong retail franchise growth. The bank's CASA ratio improved to 20.9% from 20.1% year-on-year. Suryoday Small Finance Bank Ltd (BOM:543279) maintains a healthy capital position with a CRAR of 25.8%, well above regulatory requirements. The bank's gross NPA increased to 7.2% from 2.8% in the previous year, indicating rising asset quality concerns. Profit after tax decreased by 46.8% year-on-year, highlighting profitability challenges. The cost of funds increased to 7.8% from 7.3%, impacting the bank's cost efficiency. Pre-provisioning operating profit decreased by 14.3% year-on-year, reflecting operational challenges. The bank faces significant challenges in the microfinance sector, including rising delinquencies and liquidity constraints. Warning! GuruFocus has detected 3 Warning Signs with BOM:543279. Q: Are you expecting to receive the CGFMU claims in FY26? A: Yes, we expect to receive about INR 360 crores of the CGFMU claims in the current financial year, which will cover our entire net NPA under the credit guarantee scheme. - CEO Q: What is your outlook for FY26 in terms of AUM growth and NPAs? A: We are targeting an overall book growth of 30-35% and expect to grow deposits faster. We aim for a GNPA of less than 5%, NPA less than 3%, and a credit cost of 1%. - CEO Q: Can you explain the impact of the CGFMU scheme on your NPAs? A: The CGFMU scheme covers 72.75% of the principal, and we are required to return any money collected towards principal recovery proportionately. This effectively reduces our headline GNPA numbers. - CFO Q: How are you managing your credit costs and what is the expected impact on ROA and ROE? A: We anticipate a credit cost of 1% and expect an ROA of 1.5-1.6%, translating to an ROE of 11-12%. - CFO Q: What are the current trends in Tamil Nadu and how are they affecting your portfolio? A: As of now, we are not seeing any significant disruptions in Tamil Nadu. Our collection efficiency is at 99.1%, and we are monitoring the situation closely. - CEO For the complete transcript of the earnings call, please refer to the full earnings call transcript. This article first appeared on GuruFocus.
Mint
25-04-2025
- Business
- Mint
AU Small Finance is in repair mode, but net interest margin could be a challenge
AU Small Finance Bank Ltd investors have entered FY26 with mixed feelings. While the anticipates elevated credit cost in the first half of the year, the management expects an improvement in the second half. Credit cost (on average total assets) stood at 1.3% in FY25 due to increased stress in unsecured portfolios, mainly microfinance (MFI) and credit cards. What offers comfort is that AU Small Finance Bank has seen an improvement in collection efficiency in the MFI portfolio and expects the trend to continue in FY26. Also, slippages eased to 3.62% in the March quarter (Q4FY25) from 4.06% in Q3FY25. MFI credit cost is seen declining to 3.5% in FY26 versus 7.7% in FY25. What's more, the bank is exercising caution and pursuing balanced growth in the unsecured segment. It looks to cap the MFI book at 10% of the total portfolio, while the entire unsecured segment exposure would be capped at 15%. All new disbursals are expected to be Credit Guarantee Fund for Micro Units (CGFMU)-insured. Roughly 36% of the current MFI portfolio is already covered under CGFMU. To tackle stress in the credit card portfolio , the bank has tightened the underwriting and credit filters, thus limiting credit card issuance, which stands at around 10,000 versus 40,000-45,000 cards earlier. Credit card credit cost is seen declining to 6-7% in FY26 from 11% in FY25. Overall, credit cost (on average total assets) could fall to around 85 basis points in FY26 and 75 bps in FY27. However, tight control on costs and efforts on improving asset quality should translate into meaningful improvement in credit costs, paving way for the bank to reach its return on asset (RoA) target of 1.8% by FY27 from 1.5% in FY25. For now, the management didn't give RoA guidance for FY26. The management expects the credit card business to breakeven by FY27 and that should contribute to overall RoA from FY28 onwards. Also Read: AU Small Finance Bank—weighed down by industry headwinds, but set for a turnaround That said, net interest margin (NIM) would be a challenge in FY26. The management acknowledged the likely NIM pressure as a 50bps rate repo cut would put pressure on near-term NIM outlook given around 30% floating rate book. AU has already cut the savings account rate by 25bps in April, but it is not looking to cut savings account rates in near-term. NIM fell 10bps sequentially in Q4FY25 to 5.8% as a higher proportion of low-yielding secured loans weighed on spreads. 'While credit cost is unlikely to normalize soon, we expect it to decline enough to offset any pressure from a declining NIM—and probably more," said Kotak Institutional Equities report on 23 April. Even so, given the broader macro uncertainty, the brokerage prefers to wait and establish a recovery in the core secured businesses before turning more positive. But it acknowledges that the discomfort with valuations has declined. Meanwhile, the bank expects to receive a universal bank licence in 2025. This would support growth, boost market positioning and enable better deposit mobilisation at a more favourable cost. That said, according to Emkay Global Financial Services , the bank's plan to transition toward secured loans and elevated operational cost in the run-up to its transition into a universal bank could limit RoA to 1.5-1.6% over FY26-28E. In the last one year, the stock is up around 12%, trajectory of margin and asset quality trends in mainly in unsecured portfolios would decide the stock's trajectory ahead. Also Read: MFI stress may weigh on small finance banks' loan growth, asset quality in short term
