AU Small Finance Bank (AU SFB), the country’s largest, has seen it all since it started operations—from the impact of demonetisation, GST (goods and services tax) implementation, NBFC and Yes Bank crises to nationwide lockdown due to Covid-19.

But the bank kept at it and managed to grow its loan book from ₹10,000 crore in 2017 to ₹47,843 crore in March quarter of 2021. Its present deposit base is ₹52,585 crore. Customer base rose from three lakh in 2017 to 23.7 lakh in December 2021.

“Our bank is not run by bankers, but entrepreneurs,” says MD & CEO Sanjay Agarwal, who did not take up a corporate job after completing chartered accountancy in early 90s. “I was fascinated by how businesses are run and loans are done. I avoided joining a big firm. NBFCs were the flavour of season. Private sector banks were about to come. I decided to launch an NBFC.” He founded AU Financiers in 1996, creating a pool of money from HNIs for lending to small and medium borrowers in vehicle, housing and business segments. “What we have done in last five years and are still doing is not different from how we had started. It is homeland for us. The SFB licence came out of nowhere and we did the best we could to live up to it,” he says.

HDFC Bank – The Second School

Do your job well and opportunities knock on your door. AU is an example of that. In 2003, the country’s largest private sector lender, HDFC Bank, made AU an offer to join it as a channel business partner on a risk-sharing model. This helped AU access money at lower rates. “I owe all my success to partnership with HDFC Bank. Who better than the banking champion for learning banking? They taught me how to dream big, how the system is run, compliances, corporate governance. It was a second school for me.” AU Financiers raised private equity from Motilal Oswal Private Equity in 2008. Then came the SFB licence. It was among the 10 out of 74 applicants who got the licence. The company got listed in 2017. “We needed an independent source of funding. An SFB licence allowed us to have it in the form of deposits.”

AU has come a long way from one to 500 cities. Earlier concentrated mostly in Rajasthan, it is now diversifying its geographical reach. “The bank has 74% presence in core geographies and 26% in urban areas. Overall book grew at 25% CAGR over FY2017 to December 2021. The Rajasthan book grew at 18%. Thus, other states grew much faster, which resulted in geographical diversification,” Motilal Oswal said in a research report in March 2022.

Next-Gen Bank

The world is meant to move. Life and business came to a standstill when government announced a lockdown in 2020. But AU SFB t managed to grow deposits by 38% from ₹26,164 crore in FY2020 to ₹35,979 crore in FY2021. Balance sheet expanded from ₹42,143 crore in FY2020 to ₹51,591 crore in FY2021.

Asset quality did worsen after Covid-19 but is now near pre-Covid levels. Collection efficiency is above 100%. This is why the bank’s GNPA, a measure of bad loans, fell from 3.2% in September quarter to 2.6% in December quarter. Net NPAs dipped from 1.7% to 1.3%. Provision coverage ratio, the percentage of funds a bank sets aside for losses due to bad debts, rose from 49% to 51%.

Digitisation also gathered pace with the pandemic. The bank launched video banking for different services. “We have a 100-seater office in Mumbai. In six months after its launch in September 2021, we opened around one lakh accounts through video banking.”

The company also launched SuperApp AU 0101 to provide tailor-made solutions at one place. It offers account opening/management, service requests, flight bookings, even lifestyle services such as mobile top-ups and gifting.

The company also became the first SFB to launch its own credit cards in May 2021. Its credit card base has already touched one lakh. A total of 50,000-plus credit cards were issued in December quarter, 53% to first-time users. AU is also the first bank to launch QR soundbox to help merchants hear notifications about payments.

AU’s clear-headed approach is visible in the way it has approached partnership with fintech players. Unlike most other banks, it doesn’t want to associate with fintech players, especially those into unsecured lending. “We don’t outsource anything. We only have 200 BCs (banking correspondents) and no tie-up with any fintech player. Fintech is the most abused word. As a fintech, if you are providing back-end support, I am up for it, but not for fintechs that are into unsecured lending.”

The company has been prompt in joining the account aggregation ecosystem though. Account aggregators such as One Money, CAMS Finserv and Finvu have created platforms where banks can seek customer data from other financial intermediaries after his or her consent. “These platforms will allow customers seamless information exchange. He or she will just have to say that please transfer my information to this bank. It’ll be a huge plus for new banks like ours,” says Agarwal. AU is also investing in data storage. “Once we capture customer data, we will analyse it to offer customers real-time services.”

Universal Banking

Now that AU has completed five years as an SFB, it is eligible for a universal banking licence. “For me, the journey is more important than the destination. The decision to operate as a universal bank is not ours but will be taken by board, shareholders and, of course, the regulator. What I know is that AU will become one of the most exciting banking franchises in this country,” says Agarwal.

The bank set up 10 SBUs (strategic business units) in December quarter with independent leadership in order to drive growth. These are branch banking, wheels, SBL, housing loans, commercial banking, digital banking, credit card, merchant solutions group, treasury, DCM & wholesale deposit and financial and digital inclusion. Brokerage Sharekhan believes formation of SBUs and appointment of H.R. Khan, ex-RBI deputy governor, on the board are likely to drive growth. “With augmented capital, the bank can move ahead to become a full-scale universal retail-focused bank adding to its products and features,” says a Sharekhan report.

The bank is rising and shining. Universal banking licence could well be the next opportunity that knocks on its doors.

Follow us on Facebook, Twitter, YouTube & Instagram to never miss an update from Fortune India. To buy a copy, visit Amazon.