Introduction
This inspiring story is about AU Small Finance Bank and How they became the Fastest Horse in Indian Banking’s Growth Race from 1Cr to 603 Cr in 5 Years
AU Small Finance Bank, previously known as Au Financiers (India) Ltd., is one of the leading small finance banks in India with a focus on serving unserved and underserved segments. Established in 1996 in Jaipur, Rajasthan, AU Small Finance Bank has achieved phenomenal growth over the past two decades to become one of the most profitable and fastest-growing small finance banks in the country.
AU Small Finance Bank’s Humble Beginnings
AU Small Finance Bank‘s origins can be traced back to 1996 when Sanjay Agarwal started Au Financiers as a small finance company providing loans for purchasing assets like auto rickshaws, cars, two-wheelers, etc. in Jaipur. The company focused on serving the unorganized sector and providing financial inclusion to the economically weaker sections of society.
In its initial years, Au Financiers operated as a traditional NBFC with limited scale and operations confined only to Rajasthan. However, the global financial crisis of 2008 proved to be an inflection point for the company. As several established financial institutions struggled, Au Financiers saw an opportunity to expand its presence.
Sanjay Agarwal, the founder and MD of AU Small Finance Bank, recalled the early days:
“The period between 2010 and 2015 was the golden period for our company. While large banks were coping with the aftereffects of the 2008 financial crisis, we rapidly grew our branches, disbursements, and AUMs. We ventured beyond Rajasthan into new states and expanded our product offerings.”
In the initial days, Au Financiers faced several challenges that are common for new financial services firms. As a non-banking finance company, raising capital was difficult and expensive. Attracting talent to a relatively unknown brand was another hurdle.
However, under Sanjay Agarwal’s leadership, the company persevered and laid the foundations of trust and transparency with customers. Prudent underwriting and thorough local knowledge enabled Au Financiers to maintain healthy asset quality. Leveraging technology was also a focus area right from the beginning.
These early strategic choices and customer-centric approaches helped Au Financiers gain momentum in the coming years.
Transition into Small Finance Bank
A breakthrough came in 2015 when the RBI granted ‘in-principle’ approval for Au Financiers to set up a small finance bank. This approval came as part of the RBI’s financial inclusion initiative to increase banking access to the unserved rural and semi-urban areas.
As one of the 10 entities to receive this license, Au Financiers had to transition into AU Small Finance Bank. This involved adhering to strict RBI regulations regarding capital adequacy, liquid assets, IPO within 3 years, 25% branches in unbanked rural areas, etc.
The guidelines mandated small finance banks to extend 75% of loans to priority sectors like agriculture, micro-enterprises, and weaker sections. This aligned well with AU Small Finance Bank’s underlying business model of serving the unserved.
However, the transition was not easy. AU Small Finance Bank had to alter its systems, processes, and controls to comply with RBI’s stringent regulatory requirements for a bank. Hiring talent with expertise in risk management, treasury, technology, and compliance was crucial.
Developing a public issue capable board and acquiring new capabilities like CASA mobilization, NRI services, forex business, etc. involved a lot of change management. Expanding banking operations pan-India also required significant upfront investments.
On 19th April 2017, AU Small Finance Bank commenced operations after receiving final approval from the RBI. This marked the beginning of a new growth phase for the company.
Within a short span, AU Small Finance Bank completed key milestones like the appointment of independent directors, public listing, and raising over ₹3000 crore in capital to fund growth. Sanjay Agarwal’s experience and leadership played a pivotal role in smoothly navigating the transition process.
Expanding Footprint Pan-India
As a small finance bank, AU Bank significantly expanded its presence from just Rajasthan to pan-India:
- As of March 2022, AU Bank has 700+ banking outlets spread across 215+ cities in 22 states and union territories.
- It has a wide network of 5 lakh+ banking agents providing doorstep banking services.
- From just Rajasthan in 2013, AU Bank has expanded to states like Maharashtra, Tamil Nadu, UP, MP, Bihar, Jharkhand etc.
- It forayed into metro cities opening branches in Mumbai, Delhi, Bangalore, Hyderabad, etc.
AU Small Finance Bank MD & CEO, Sanjay Agarwal commented on this growth:
“This growth has been possible due to the trust our customers have demonstrated in our ability to provide a seamless banking experience. We will continue to further this trust and make AU Bank the preferred banking choice for more Indian customers.”
The bank implemented a hub-and-spoke model for expansion with branches in tier 2 and 3 cities supported by low-cost BC outlets in rural areas.
AU Small Finance Bank tailored its products and services as per regional customer requirements. A localized approach helped build connections with customers across India. Prudent selection of branch locations using data analytics helped maximize visibility and footprint. Combining physical reach with digital channels gave AU Bank the right omni-channel presence.
AU Bank’s nationwide growth across Bharat and India makes it one of the most geographically diversified small finance banks.
Offering Innovative Products
Along with the geographic expansion, AU Small Finance Bank also expanded its product portfolio to serve its customers better:
- It provides savings accounts, current accounts, fixed deposits, demat accounts, PMMY loans, MSME loans, gold loans, home loans, insurance, and more.
- AU 0101 Digital Savings Account – A completely digital savings account that can be opened instantly using an Aadhaar and PAN card. It comes with unlimited free transactions.
- AU FASTag – Offering the convenience of cashless payments at national toll plazas.
- AURAS Business Banking – Digital banking platform for MSMEs and startups helping automate daily business transactions.
- AU Credit card – Launched in 2022, it offers limits up to Rs. 20 lakh and cashback rewards.
The bank has leveraged technology to provide innovative products and superior customer experience. It recently launched vernacular apps in Hindi, Kannada, and Gujarati. The bank’s MD, Sanjay Agarwal, stated that such innovations have played a key role in AU Bank’s growth.
AU Small Finance Bank has been nimble in identifying market needs and launching suitable products. For instance, it launched pre-approved two-wheeler loans to tap rising aspirations in small towns post-Covid. Such intuitive product design combined with localized service has been a key differentiator.
The bank has also maintained robust risk management practices. This is evident in its gross NPA ratio of just 2%, which is among the lowest in the industry. Product innovation along with prudent underwriting has been at the core of AU Bank’s success.
Financial Growth Trajectory
AU Small Finance Bank has charted an impressive financial growth trajectory over the years:
- Its profits have surged from just ₹5 crore in 2011 to ₹603 crore in 2022.
- Net interest income has grown from ₹47 crore to ₹2,220 crore during this period.
- Deposits have risen from ₹646 crore in 2017 to ₹37,281 crore in 2022, a 57x growth.
- The advance book has grown from ₹4,030 crore to ₹41,334 crore, a 10x growth.
- As of December 2022, AU Bank has a market cap of over ₹14,000 crore.
In his letter to shareholders in the FY22 annual report, Sanjay Agarwal highlighted AU Bank’s phenomenal growth:
“We have come a long way in a short span. Our balance sheet size increased ~10x from ₹5,724 crore as of 31st March 2017 to ₹58,333 crore as of 31st March 2022 – validating our business model and execution capabilities.”
AU Bank has delivered consistently high return ratios, with RoA of >2% and RoE of >20% over the past 5 years. This demonstrates the robustness of its business model.
The bank has maintained prudent asset liability management, with high share of retail deposits providing a stable funding base. It has leveraged technology to acquire low cost deposits rapidly.
AU Bank is also well capitalized, with capital adequacy ratio of over 20% – well above regulatory minimum of 15%. This provides a cushion for future growth.
In FY22 annual report, Sanjay Agarwal outlined the bank’s strategic priorities:
“Our strategic priority in coming years will be Liabilities leadership, Cost leadership, Technology leadership, People leadership and Risk leadership.”
This focus on building a solid foundation across domains sets up AU Small Finance Bank well to fund its next phase of high growth.
Recognition through Awards
AU Bank’s exponential growth, customer focus and industry leadership has been recognized through various awards:
- ‘Great Place to Work’ certification – AU Small Finance Bank has been certified as a Great Place to Work three years in a row.
- ‘Best Small Finance Bank in India’ – Awarded at the Global SME Banking Awards 2021.
- ‘Excellence in Financial Reporting FY 2020-21’ – Awarded by The Institute of Chartered Accountants of India.
- ‘Best Digital Initiative by a Bank’ – Awarded at the BusinessWorld Digital India Summit.
- ‘Most Customer Centric Bank’ – Awarded at the India Best Bank Awards 2022.
- ‘Best Bank for MSMEs’ – Awarded at the SME Banking Excellence Awards
- ‘Best Digital Bank of the Year’ – Awarded at Indian Banks Association banking technology awards
These awards validate AU Bank’s position as one of the most successful and fastest growing small finance banks in the country. The recognition reflects the bank’s strategic agility, customer focus and technology leadership in a highly competitive industry.
The Road Ahead
From humble beginnings in Jaipur to becoming a leading small finance bank, AU Small Finance Bank has come a long way. However, the journey is far from over.
AU Small Finance Bank aims to have 1000+ banking outlets in the next couple of years to deepen financial inclusion. The bank is investing heavily in digital infrastructure and new age capabilities to enhance customer experience.
It also plans to diversify revenue streams via new subsidiaries like housing finance arm AUHF and mutual fund business. International expansion is also on the horizon.
The bank is strengthening data analytics and credit underwriting capabilities to grow its secured lending portfolio. Cross-selling across products will drive higher wallet share from existing customers.
As Sanjay Agarwal summarized, AU Bank’s ambition is:
“To be the best institution serving unserved and underserved customers and transforms lives.”
AU Bank represents a new generation of nimble, tech-savvy banks bridging the credit gap for India’s emerging middle class. Its growth journey reflects the capabilities of focused leadership, customer centricity and hunger for continuous innovation. The next decade looks even more promising as AU Bank charts new heights in the Indian banking landscape.
