Chairman’s communique

Driving progress with stability,
change with continuity

“AU Bank completed its three years as a Bank and 25 years as an institution. While seized by the impending challenges, the Bank remains charged with optimism, and I have confidence in the Bank’s ability to overcome the challenges and scale greater heights.”

– RAJ VIKASH VERMA

India had a very timely and a resolute response to the COVID-19 pandemic as it undertook numerous health, social, economic, fiscal and relief measures at the national, regional and local levels in the face of the difficult situation on the ground, making efforts to contain the spread of the pandemic within communities as far as possible.

DEAR STAKEHOLDERS,

Greetings to you!
It gives me a deep sense of gratitude and humility, as I took charge as Chairman of the Board of Directors at AU Bank. During this period, when the world is going through the most unprecedented and trying times, I sincerely hope that you and everyone around is taking due care, and keeping healthy and safe. We can only wish we were in better times than these, but nevertheless, we hope that the tide will turn soon and normal times will be back. As the COVID-19 pandemic is still unfolding, it is widely believed that it will have a severe impact on economic activities around the world.

A spate of opinions and forecasts from specialists across the globe are consistently pointing towards weakening of the global economy and the global GDP. In its latest World Economic Outlook, April 2020 IMF projects a long period of recession and a sharp contraction in global GDP by –3% in 2020, much worse than that during the FY 2008–09 financial crisis. However, in certain other scenarios based on big containment efforts and early resumption of economic activities, the IMF baseline projection estimates global growth to be around ~5.8% in 2021 on the back of early recovery. Nevertheless, there is extreme uncertainty around the global growth forecast and it will be greatly dependent upon the resumption of employment and economic activity.

India had a very timely and a resolute response to the COVID-19 pandemic as it undertook numerous health, social, economic, fiscal and relief measures at the national, regional and local levels in the face of the difficult situation on the ground, making efforts to contain the spread of the pandemic within communities as far as possible. However, impacted by COVID-19, the Indian economy is projected to grow at a far lower rate of around 1.9% in calendar year 2020, down from the earlier pre-COVID estimate of 5.9%. This figure may further come down as the income levels and employment numbers continue their downward trend, with muted demand considerably undermining the growth potential of the economy.

‘‘I recently took charge as Chairman of the Board of Directors at AU Bank, based on the approval of the Board and the Reserve Bank of India. During this period, when the world is going through the most unprecedented and trying times, I sincerely hope you and everyone around is taking due care, and keeping healthy and safe.’’

In an alternate scenario, the economy may witness relatively quicker turnaround based on sound policies and coordinated measures taken jointly by the Government of India and the RBI, which are already evident. On the back of these expectations, we should see faster recovery in post COVID-19 scenario. Based on these ground realities, IMF projects India’s growth to recover sharply to ~7.4% in calendar year 2021.

In these challenging times, the financial sector will be expected to play a critical role in the turnaround and recovery of the economy. Promoting and sustaining means of livelihood among the masses and creating employment opportunities are the two immediate challenges that will need to be addressed. Key factors such as employment, income and demand generation through a good mix of fiscal and credit policy measures will determine the pace of growth and the GDP outlook in coming times.

Given the magnitude of the challenge, and the all-pervasive nature of the pandemic — affecting both the real economy (physical sector) as well as the financial sector, it would only be prudent for banks and financial institutions to tread forward carefully. They will need to give the highest priority to cash conservation, liquidity, capital conservation, and asset quality. At a minimum, banks will need to maintain sufficient solvency capital with a buffer of risk and growth capital, which would be in short supply in the face of high levels of risk in the real economy.

Amidst challenging times ahead and a weak and fragile growth outlook, AU Bank completed its three years as a Bank and twenty-five years as an institution. Aware of the impending challenges, the Bank remains charged with optimism, and I have confidence in the Bank’s ability to overcome the challenges and scale greater heights. I take this opportunity to congratulate the entire AU team, Promoters, Management and Shareholders on the momentous occasion of AU completing 25 years as an organisation in 2020. I extend my gratitude to all of you for reposing your unwavering trust and belief in AU’s franchise. In FY 2019-20, I am happy to share that AU Bank grew its aggregate deposits by 35%, its AUM by 27% alongside reducing its cost of funds and maintaining a stable asset quality. Despite tougher macroeconomic environment, the Bank reported stable NIMs and a growth of ~77% in its PAT. It continued to maintain strong capital adequacy of 22.0% and liquidity coverage ratio of ~133% as on 31st March 2020.

‘‘During the year FY 2019-20, the Bank has clocked good numbers which give a decent buffer to the Bank in the difficult times ahead. This is particularly significant in the backdrop of changing long term trends, including a drop in overall saving rates and deceleration in credit growth across all asset classes.’’

During the year 2019-20, the Bank has clocked good numbers which give a decent buffer to the Bank in the difficult times ahead. This is particularly significant in the backdrop of changing long term trends, including a drop in overall saving rates and deceleration in credit growth across all asset classes. We witnessed a record decline in the credit growth of the banking industry, besides the issues of liquidity, NPAs, etc. The RBI has been taking a slew of calibrated and synchronised measures, to boost liquidity, maintain and improve flow of credit and keep the interest rates low, among others to avoid disruptions and discontinuity in businesses and economic activities. However, these are tougher times, particularly for non-banking finance companies, which could in turn create further challenge at the systemic level, if not addressed in time. With timely response of the RBI and the Government of India, the uncertainties around the shadow banking institutions / NBFCs are being systemically addressed.

‘‘In the backdrop of the disruptive trends and difficult macro-environment, the financial parameters of FY 2019-20 for AU Bank look promising and healthy, though the journey ahead is likely to be filled with new challenges. That said, I feel that AU Bank being young and agile, energy-filled and nimble-footed, has the necessary skills, competence and experience of 25 years in the lending space to stay the course and continue to grow its business in the niche market space.’’

In the backdrop of the disruptive trends and difficult macro-environment, the financial parameters of FY 2019-20 for AU Bank look promising and healthy, though the journey ahead is likely to be filled with new challenges. That said, I feel that AU Bank being young and agile, energy-filled and nimble-footed, has the necessary skills, competence and experience of 25 years in the lending space to stay the course and continue to grow its business in the niche market space. I am confident that your Bank is well placed to navigate through the challenging times by quickly reprioritising, repositioning and reorganising its business and business model. In difficult times, the Bank is reinforcing its commitment to grow and serve its large constituency of unbanked and underserved segments of the population through its financial inclusion programme. Starting off as an NBFC with one product (vehicle financing), one location and a small team, today AU Bank offers more than 30 products at 647 banking touchpoints across 11 states and one Union Territory with a team of 17,000+ employees, and has a stellar track record in delivering growth while keeping asset quality in control. This has been possible due to its prudent risk management approach (84% of loan book is retail, 98%+ of its loan book is secured) and strong corporate governance. Further, the Bank has been leveraging technology to enhance customer convenience and customer connect. This, coupled with its strong business model and franchise places the Bank quite firmly in the banking space, enhancing its ability to take banking to the last mile in India. The Bank is fully compliant with government and regulatory policies, and continues to be bestowed with strong trust and support from all its stakeholders.

Before I conclude, I wish to express my sincere gratitude to the Reserve Bank of India, Securities and Exchange Board of India and other industry participants for their valuable support, guidance and directions from time to time, to improve our functioning. I also thank our customers, investors and employees for their contribution and support during our journey so far.

New challenges will call us to make suitable amends to our strategy and execution, and we look forward to carefully tread between opportunities, risks and rewards. We will always give our best to keep the faith of our customers, regulators and to build sustainable value for our shareholders.

Wishing you the best of health as well as safe and good times ahead.

Regards,
RAJ VIKASH VERMA