Leading change responsibly
Greetings to all of you.
I sincerely hope all of you are taking care of yourselves and family members andstaying safe and protected. These are unprecedented times that bring new challenges everyother day as the world is still discovering the New Normal. The financial year 2020-21as it turned out opened on a very low note with the spectre of pandemic staring in theface with uncertainty looming large on lives livelihoods business and the economy. Thepandemic also ensured that mankind came together and supported each other in an altruisticmanner. People were ready to help each other even on a distress call received from anunknown person on a social media platform. Let me take this opportunity to acknowledge andexpress our gratitude to all our frontline workers and real-life heroes who showedCourage Compassion and Character during these trying times.
The year was marked not only by challenges but the extent to which the world braceditself to meet the challenges. Amidst the scenario of gloom caused by the pandemic at theglobal level I am proud to share with you all that AU Bank remained undeterred in thepursuit of its goals and objectives ending the year on a strong positive note withsubstantial progress made during FY 2020-21.
The adversity tested our fundamental strengths such as deep engagements with customersemployees and other stakeholders along with unwavering focus on governance compliancerisk mitigation and special care for those affected by the pandemic. Based on our closeconnect with the customers we adopted a hands-on pragmatic approach proactively helpingthem in times of distress to avail facilities under different schemes announced by theGovernment and RBI with care and due diligence.
Throughout this difficult period we have given priority to the health and well-beingof our teams and customers depositors and borrowers and all other stakeholders. We beganFY 2020-21 with a lot of concern as the pandemic challenged global economic growth andthe human development index. The Indian economy also contracted for two consecutivequarters. It was only in the third quarter that we started seeing signs of recovery in theeconomy with GDP expanding by 0.5% in Q3 FY21 and by 1.6% in Q4 FY21. Although the secondCOVID variant seen in Q1 FY22 poses the risk of jeopardising India's fragile economicrecovery we remain cautious in our overall growth outlook for FY 2021-22. The RBI expectsthe pace of economic growth to accelerate in the coming quarters and estimates an overallGDP growth rate of 9.5% for FY 2021-22.
During the year the Reserve Bank of India (RBI) and the Government of India took someunprecedented steps and introduced several time-critical measures to help the economy tideover the crisis. Other than conventional measures like changing the policy rates andvarious liquidity ratios (CRR LCR SLR ratios etc.) the RBI introduced long-term repooperations (LTROs) and targeted long-term repo operations (TLTROs) to augment systemic aswell as sector-specific liquidity to meet credit requirements in different sectors andreduce stress in vulnerable segments of the economy. Special refinance facilities wereprovided to select All India Financial Institutions (AIFIs) while a special liquidityfacility for mutual funds (SLF-MF) was introduced to ease redemption pressures.
To support Micro Small and Medium Enterprises (MSMEs) which were hit hard by thepandemic the Emergency Credit Line Guarantee Scheme (ECLGS) and the Credit GuaranteeScheme for Subordinate Debt (CGSSD) were introduced by the Government of India. These havebeen duly supported by various monetary and regulatory measures by the RBI in the form ofinterest rate cuts higher structural and durable liquidity moratorium on debt servicingasset classification freeze for 180 days loan restructuring package and CRR exemptions oncredit disbursed to new MSME borrowers.
During the year Small Finance Banks (SFBs) as a differentiated banking categoryfaced formidable challenges being a relatively new entity in the Indian banking universewith focus on priority sector last mile credit delivery and financial inclusion. AsIndia's largest SFB by asset size AU Bank used its deeper geographic presence insemi-urban and rural India to successfully reach out to the unserved and underservedsectors of the society such as MSMEs and ensure a constant delivery of credit andessential banking services during these challenging times. Our biggest strength as an SFBis that we act as a reliable bridge between the formal sector of the economy and thesemi-formal and the informal sector spanning Urban centres to semi-urban and rural partsof India. While the Bank has registered a promising start with significant growth acrossall major parameters we constantly continue to Innovate across products and solutionsbranch network and digital platforms to reach out and serve the customers efficiently anddiligently. Our learnings and experience have enabled us to meaningfully serve ourcustomers through better execution capabilities.
Never waste a crisis
At AU Bank once we assessed that COVID is here to stay for an Indefinite period wequickly reoriented our strategies and repositioned ourselves to meet the challenge andenhance our resilience. We strengthened our digital banking channels by upgrading ourinfrastructure to reach out to more customers and fulfil their expectations. Despiteoperational challenges owing to COVID-related safety protocols our disbursements expandedsignificantly post Q2 FY21 driven by demand growth across most key segments. Overall thechallenges notwithstanding the second half of the fiscal was one of the best performinghalves since we became a bank.
At the same time incremental and AUM spreads continued to remain stable owing to thelow cost of funds. Post lockdown our collection efficiencies and activation ratesgradually achieved normalcy across most segments. During FY 2020-21 we raised Rs.625.5crore from investors via qualified institutional placement (QIP). We reported an aggregatedeposits growth by 38% and AUM growth by 22% with reducing cost of funds and stable assetquality. Despite a challenging environment we reported stable NIMs with a growth of 73%in Profit After Tax (PAT). We also focused on becoming a pan-India bank with foray intofive new states. With growing scale and expansion we hired over 5000 new members tofurther strengthen and fortify our workforce.
Our efficient and strong operational machinery is driven by our dedicated teams withcommitted and caring staff members possessing skills and capacity. During the year weundertook several activities to ensure the health and safety of our team members. Fromaddressing employee queries through COVID helpdesk educating teams for safer behaviourcollaborating with various hospitals to get additional discounts and benefits for ourpeople we have always stayed close to those who make us as well as those affected by thepandemic through various services and outreach programmes. It is commendable how the MD& CEO of the Bank led from the front as he donated his personal wealth of 25 Lakhshares to fund the COVID related relief and other measures; decided to forgo his oneyear's salary for the benefit of the employees and personally got involved in many COVIDrelief initiatives.
We have been prudent in approving restructuring proposals basis our internalrisk-mitigation models and business viability. The priority for us was to measure andmitigate risks proactively and build up adequate provisioning buffers to absorb potentiallosses. During the year under review we formulated a specialised group collaborating onRisk Control and Governance (RCG) functions to reinforce effective internal controls astrong risk culture and accountability to stakeholders. The RCG group enhancesaccountability strong risk and performance management transparency and resolvespotential conflict of interest.
This journey has brought in its wake rich lessons for us; it helped us hone our skillsand improve understanding of situations to shape our future strategies. Educated by thecrisis we believe that the Bank is well poised and has adequate resources and skills toconstantly reform and grow sustainably with time with sharper focus on customersatisfaction digitalisation cost optimisation and an ethics-driven compliance culture.
We are using our learnings to fast-track our journey towards becoming a full-fledgedtechnology- led bank with due emphasis on granular deposits and retail loans. Thisstrategy is in line with our overarching mandate to drive financial inclusion. In thisjourney we have received the help and support of all our investors and stakeholders andwe express our gratitude to each of them.
We are looking far and beyond the current status of the bank in the SFB space; we arepropelling the Bank's journey to the next important milestone in the bigger banking spacewith an aspiration to serve all sectors and segments of the economy under the largeragenda of national development and growth.
We are passionate about service to all our existing and potential customers and winningtheir trust and confidence and of all our existing and new institutional investors whowill continue to be our valued partners throughout the pursuit of all our goals. We areconsistently expanding the horizon and scope of our reach to serve larger and diversesegments of customers and stakeholders.
The banking services in India is evolving rapidly and we are focused to serve theinterests of both customers and other stakeholders with the Bank's larger capital basestronger governance Board and management oversight and a proven track record ofexecution and commitment.
Admittedly downside risks still remain as the second wave of the pandemic may impacteconomic performance. To remain abreast with the developments and uncertainties around itwe are constantly reviewing the scenario and the Bank will remain agile and nimble footedto quickly adjust to the new emerging situation and make suitable amends in our strategyand execution.
Our integrated risk management system and mitigation mechanism are geared to protectthe interests of all depositors customers and stakeholders.
As the financial year 2020-21 was drawing to a close the Indian economy wasadvantageously poised relative to its peers. Our country was on the verge of a strongrecovery having flattened the infections curve. In a few weeks since then the situationhas altered dramatically. India is now fighting a fierce rise in infections andmortalities with the emergence of new mutant strains. This has caused immense stress onhealthcare and medical facilities vaccine and oxygen supplies with the entire healthcareinfrastructure completely overwhelmed by the scale and nature of the second wave.
Against this backdrop the RBI has taken further measures in the new financial year2021-22 such as:
Term Liquidity Facility of Rs.50000 crore to ease access to emergency health services;Special Long-Term Repo Operations (SLTRO) of Rs.10000 crore for Small Finance Banks(SFBs) to provide further support to small business units micro and small industries andother unorganised sector entities; Lending by Small Finance Banks (SFBs) to MFIs for"on-lending" purposes to be classified as Priority Sector Lending and many othersuch initiatives. These measures are targeted to further boost liquidity in the stressedsectors of the economy and help save lives and livelihoods of people across the country.
At the execution level we remain committed to serve our customers with unflinchingcommitment care concern and passion.
I take this opportunity to thank the RBI SEBI and other industry participants fortheir support and guidance. I also thank our customers investors and teams for keepingtheir faith in our vision and ability which is always a source of strength and inspirationfor the Bank and its entire staff reflecting in its performance achievement and results.
We have many more milestones to accomplish and we are confident that our entirestakeholder fraternity will always remain our partner in this exciting journey.
Regards and Namaskar
Raj Vikash Verma