The improving liability profile of AU Small Finance Bank, India’s largest small finance bank, has resulted in an upgrade in its CRISIL Ratings. AU Bank has been assigned a rating of CRISIL AA/Stable for its long-term debt instruments (Tier-II Bonds, Non-Convertible Debentures, and Subordinated Debt Bond) by CRISIL Ratings, one of the most reliable rating agencies in India. Earlier, Tier II Bonds had a rating of CRISIL AA-/Positive that has been upgraded to CRISIL AA/Stable. Additionally, the bank has received a rating of CRISIL AA/Stable for its Fixed Deposits programme, migrated and upgraded from CRISIL FAA+/Positive. The upgrade of ratings stands testament to the sustenance of the bank’s overall performance and its demonstrated ability to improve its asset quality and earnings profile.
The key strengths of AU Small Finance Bank and the drivers of the upgraded ratings were:
Adequate capitalisation with the Capital Adequacy Ratio constantly above 15%
A sustained improvement in its deposit franchise with a three-year CAGR of 39.4%
The bank’s ability to sustain improvement in its retail deposit franchise
A demonstrated track record of maintaining a better-than-average asset quality by a strong focus on portfolio monitoring and collection practices and a comprehensive understanding of the operating geography and borrower profile
Adequate profitability over the last 3-4 years due to high yields with reduced cost of incremental funding
Strong liquidity with the average Liquidity Coverage Ratio (LCR) of 125% against the regulatory requirement of 100%.
Commenting on this development, Mr. Sanjay Agarwal, Managing Director and CEO, AU Small Finance Bank, said, “The upgrade of ratings by CRISIL is the outcome of the hard work put by AU Bank team to ensure a ramp-up in deposit franchise, strong asset quality in the post-COVID scenario, and hawk-eye approach on the asset quality. We have also maintained adequate capitalisation and healthy profitability metrics despite the challenges. Going forward, we will continue investing in our digital capabilities and introducing newer products to ensure the delivery of quality services to our customers.”
Basis similar observations, CARE Rating also, recently, upgraded the Bank’s long-term debt instruments (Tier-II Bonds) rating to CARE AA/Stable which was earlier CARE AA-/Stable. In addition, the agency has also reaffirmed the rating of the bank’s short-term instruments (Certificate of Deposits) at A1+.