By 2017, Sanjay Agarwal had spent two decades handing out automobile loans. While he admits the first decade had been slow, the venture grew rapidly in the next and was on its way to carving out an enviable niche as a nonbanking finance company (NBFC). But the 50-year-old first-generation entrepreneur who founded the company in 1996 as AU Financiers had seen first-hand the problems firms like his face when raising money. A lack of financing (and poor quality loan book) had proved to be a death knell for several peers.
At the same time, the mandarins at Mint Street wanted to further their pet cause—financial inclusion. Banking needed to be taken much deeper to small-town India, and while scheduled banks had pitched in over the last four decades, large swathes of Indians were still dependent on moneylenders and their usurious rates of interest. Enter small finance banks that were regulated by the Reserve Bank of India (RBI).
“We knew that NBFCs could never be the main platform as raising money is a challenge, professionals prefer to work for banks and borrowers will always go to banks first,” says Agarwal. At the same time, AU Financiers had a two-decade track record of making loans and collecting on them. Agarwal raised his hand for consideration in 2017. In all, ten banks were licensed with AU Small Finance Bank being the largest (AU is the periodic symbol for gold). It was the only NBFC out of 72 applicants chosen by the RBI. “Suddenly a much larger field opened up for us,” he adds.
Since it received its license, AU has continued to prove its mettle and provided a case study in how smaller banks with the right systems and processes can grow rapidly. At a time when there is fierce debate on whether corporates should be allowed to run banks, it is entities like AU Finance and peers like Equitas, Suryoday, and Jana, among others that have shown how it is possible to get more people under the banking net without increasing systemic risk. Importantly, these banks are modeled on raising liabilities from urban India and deploying them in an asset base in smaller towns and cities.
Since it was given a small finance bank license in 2017, AU’s loan assets have more than trebled from ₹10,734 crore to ₹33,222 crore, and revenue has moved up from ₹1,280 crore to ₹4,286 crore, an annual growth rate of 35 percent. For now, bad loans are under check with net non-performing assets (NPA) of 0.2 percent. While this could rise once the moratorium ends [the RBI moratorium has ended, but NPAs will be disclosed only during the quarterly results that haven’t been announced yet], the bank insists the numbers are under control. In fact, the resilience of its book has given it the confidence to grow equally rapidly once the pandemic is behind us.
The potential for growth has catapulted AU Small Finance Bank to a market capitalisation of ₹33,700 crore ($4.4 billion), with Agarwal’s 28.8 percent stake worth $1.3 billion, making him a new Indian entrant on the Forbes Billionaires List. With 6 percent of the bank owned by employees, he’s also shared his wealth and recently set up a foundation donating 25,00,000 shares worth ₹260 crore. But Agarwal, who colleagues describe as a constant thinker and innovator, is not done. He has the vision to grow the bank to at least a ₹100,000 crore loan book in three to five years. Without taking names, he says he’s keen to be counted among his much larger peers.
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