AU Small Finance Bank clarifies on recent executive exits; analysts flag concerns

a group of people in a store: AU Small Finance Bank shares jump 8% as Q1 deposits, AUM improve

© Provided by CNBCTV18
AU Small Finance Bank shares jump 8% as Q1 deposits, AUM improve

AU Small Finance Bank shares continue to remain under pressure on Wednesday after the company confirmed the resignation of its Head of Internal Audit Sumit Dhir. CNBC-TV18 had earlier reported that Dhir was the replacement of Nitin Gupta, Chief Audit Officer at the bank who resigned four months ago.

This was the third top-level exit at the bank after the resignation of Alok Gupta, Chief Risk Officer of the bank.

However, the company’s management clarified saying that Dhir expressed his desire to move back to his hometown due to personal reasons post-Covid second wave and the bank was trying to retain him.

The stock price of AU SFB had plunged more than 12 percent on Tuesday after the CNBC-TV18 newsbreak.

Read here: AU Small Finance Bank sees another exit, Internal Audit Head Sumit Dhir resigns

Analysts believe that the resignations in audit or risk functions may raise investor concerns about the sanctity of the books or risk management practices. However, management has tried to allay such concerns and indicated that there were no red flags by the RBI in its recently completed audit.

Domestic brokerage house Emkay Global said that possibly aggressive management style, and more so in the transition to a Universal Bank call for stricter risk management and compliance practices, could have partly contributed to the resignations.

“We believe the bank’s management needs to come out clean and explain the back-to-back resignations as a damage control measure. It also needs to be more transparent and should make timely disclosures to avoid unpleasant surprises,” the brokerage said in a note.

However, the brokerage house added that it takes comfort in the bank’s strong capital adequacy ratios and superior return metrics.

“The bank has steadily ramped up its liability profile, with the CASA pool standing at 26%, but it still remains sub-par compared to best-in-class peers like Bandhan and Equitas, leaving scope for improvement. Management instability could impact the trust of investors and depositors as well, and so it needs to be addressed swiftly,” it added.

Meanwhile, in an investor call to address these concerns, the management re-assured that the bank continues to do well.

July and August were far better in terms of business continuity and asset quality. The senior member team has expanded from 10 person to 50 person and no resignation has come from senior members, the bank said.

Emkay Global said it will be closely monitoring the corrective measures to be taken by the bank.

At 11:35 am, the shares of AU Small Finance Bank were trading 0.93 percent higher at Rs 1,141.25 apiece on the BSE.

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