Ref. No.

: AUSFB/SEC/2022-23/384
Date: 28th October, 2022

To,

National Stock Exchange of India Ltd. BSE Limited

Exchange Plaza, C-1, Block G, Phiroze Jeejeebhoy Towers,
Bandra Kurla Complex, Dalal Street,
Bandra (East), Mumbai 400051, Mumbai 400001,
Maharashtra. Maharashtra.
NSE Symbol: AUBANK Scrip Code: 540611

Dear Sir/Madam,

Sub: Transcript of Conference Call to discuss Financial Result for the quarter and half year ended on
30th September, 2022

Pursuant to Regulation 30 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations
2015 (“Listing Regulations”), we submit herewith the transcript of the conference call held on
Wednesday, 19th October, 2022 for the Financial Results of the Bank for the Quarter and Half Year
ended on 30th September, 2022.

In compliance of Regulation 46 of the Listing Regulations, the transcript is also made available on the
Bank’s website at https://www.aubank.in/investors/quarterly-reports.

This is for your information and records.

Thanking You,

Yours faithfully,
For AU SMALL FINANCE BANK LIMITED
MANMOHA Digitally signed by
MANMOHAN PARNAMI

N PARNAMI Date: 2022.10.28

19:40:05 +05'30'
Manmohan Parnami
Company Secretary and Compliance Officer
Membership No.: F9999
[email protected]

Encl: As above
 “AU Small Finance Bank's Q2’FY23 Earnings
Conference Call”

October 19, 2022

MANAGEMENT: MR. SANJAY AGARWAL – MANAGING DIRECTOR &

CHIEF EXECUTIVE OFFICER, AU SMALL FINANCE
BANK
MR. UTTAM TIBREWAL – EXECUTIVE DIRECTOR, AU
SMALL FINANCE BANK
MR. YOGESH JAIN – CHIEF OF STAFF, AU SMALL
FINANCE BANK
MR. VIMAL JAIN – CHIEF FINANCIAL OFFICER, AU
SMALL FINANCE BANK
MR. RISHI DHARIWAL – GROUP HEAD LIABILITY, AU
SMALL FINANCE BANK
MR. VIVEK TRIPATHI – HEAD OF COMMERCIAL
BANKING, AU SMALL FINANCE BANK
MR. GAURAV JAIN – HEAD OF TECH INITIATIVES &
DISTRIBUTION STRATEGIES, AU SMALL FINANCE
BANK
MR. PRINCE TIWARI – HEAD OF FIG AND IR, AU
SMALL FINANCE BANK
MR. ASEEM PANT –VP OF IR, AU SMALL FINANCE
BANK

Page 1 of 18
 AU Small Finance Bank
October 19, 2022

Moderator: Ladies and gentlemen, good day, and welcome to AU Small Finance Bank Q2 FY'23 Earnings
Conference Call.

As a reminder, all participant lines will be in the listen-only mode. And there will be an
opportunity for you to ask questions after the presentation concludes. Should you need assistance
during the conference call, please signal an operator by pressing “*” then “0” on your touchtone
phone. Please note that this conference is being recorded.

I now hand the conference over to Mr. Aseem Pant from IR Team. Thank you, and over to you,
Sir!

Aseem Pant: Good day to everyone and welcome to AU Bank’s Earnings Call for the 2nd Quarter of FY'23.
We thank you all for joining the call and we hope you are well.

As usual, for approximately the first 30 minutes of the call, we will have brief remarks by few
members of our senior management, followed by 30 to 45 minutes of Q&A. Firstly, we will
have our MD and CEO – Mr. Sanjay Agarwal, share his thoughts on the performance and overall
outlook for the bank. He will be followed by our ED – Mr. Uttam Tibrewal, who will share his
thoughts on the Assets and Liabilities performance. And finally, we will have Mr. Gaurav Jain
- Head of Tech Initiatives and Distribution Strategy, who will talk about our progress in Digital
Initiatives. Besides them, we will also have few other members of our senior management to
answer any questions you might have.

For the benefit of everyone, we would humbly request that the number of questions per
participant be restricted to two and to join back in queue or mail us in case you have any further
questions.

We would also like to take this opportunity to announce that our third AU Insights session is
scheduled for the 3rd of November and will be held virtually. We will share further details in due
course and we look forward to your participation.

With that I will request our MD and CEO, Mr. Sanjay Agarwal to share his thoughts on the
bank's performance and outlook.

Sanjay Agarwal: Good evening, everyone. Namaskar. Thank you for joining in. Hope you are doing well. To
begin with, I just want to wish everyone a very ‘Happy Diwali’ and a very happy festive season.

This quarter makes us 22 quarters old in our journey of banking and I am amazed to see the
progress that we are making as a team. In these five and a half years, we have been extending
our foundation for building a scalable and sustainable bank. And we are on course of course.

We have managed to grow the bank to a net worth of more than Rs. 10,000 crores and both asset
and deposits have crossed the critical milestone of Rs. 50,000 crore by serving 30 lakh plus
customers.

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 AU Small Finance Bank
October 19, 2022

I would like to express myself that each passing quarter increases our confidence that we are on
the right path, going the right way, with the right purpose, right strategy and right attitude. I am
very excited about the road ahead of us, as a banking system we will see tremendous
opportunities in the coming decade as India prepares to become $5 trillion economy.

In terms of macro, global economic activity has been slowing down due to the adverse impact
of geopolitical tensions, tightening global financial conditions, persistently high inflation and
sharper than expected monetary tightening by Central Banks globally.

Consequently, India too is facing intensified pressures due to the global interest rate trends,
weakening global demand and high volatility in portfolio flows. Despite these headwinds, India
has emerged as a bright spot with GDP expected to grow 7% this fiscal. I am very hopeful about
a decade ahead as India stands to benefit immensely from the tailwinds of reforms implemented
over the recent years, favourable demographics, ongoing digital revolution and realignment of
global supply chains.

Based on the recent data banking system credit growth looks healthy at 16.4% year-on-year, and
we continue to see growth in digital transaction too. Notably asset uncertainty over rates and
liquidity has risen significantly in recent months, while inflation still remains above the comfort
zone of policymakers.

Coming to the AU, the last quarter was amongst the best quarter as a bank, where we got most
of the things right. We have launched 27 touch points in this quarter. We grew our deposits by
49% year-on-year. Our CASA ratio reached 42% and CASA plus retail deposits mixed reach
73%. Our cost of money was 5.78% for six-month period. I would like to congratulate the team
for doing such a wonderful job of raising the deposits during the quarter without any increase in
our deposit rates.

The credit market also saw good pickup with festive season coming a bit early this year.

The asset business saw disbursement of ~Rs. 9,200 crores, growing 68% year-on-year and
disbursement yield continues to see improvement.

Similarly, the collection efficiency and asset quality continue to hold with average collection
efficiency at 108% for the quarter, and gross NPA coming at 1.9% and net NPA at 0.56%.

Our asset quality which is one of our core strengths has remained resilient across cycles. And
we are committed to maintaining pristine asset quality. The pandemic days reinforced our faith
in our customer segments and we are convinced that we are serving the right customer segment.
In fact, the asset quality of post-pandemic book is even better. 77% of our book was originated
post-pandemic where gross NPA is around 0.55%. Meanwhile, our balance sheets size grew by
46% year-on-year. Net worth grew by 49% year-on-year and our capital adequacy is around
23.4%.

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 AU Small Finance Bank
October 19, 2022

In August, we raised capital of Rs. 2,500 crore with Rs. 2000 crore for Tier-1 and Rs. 500 crore
of Tier-2 bonds. QIP was launched amid challenging market conditions and I am overwhelmed
by the support that we received from all the participants. I would like to convey my heartfelt
gratitude to everyone who supported us. Thank you so much. This has enabled us further
strengthen our balance sheet and allow us to continue investing for the future.

Notably this quarter also we got the upgrade from the third-rating agency. So, now we are AA
stable for all three, CRISIL, India Rating and Care. Thank you so much.

Our margin for the quarter expanded at 6.2% from 5.9% quarter-to-quarter. Profit rose by 23%,
to Rs. 343 crores with ROA of 1.8% and ROE at 15.3% despite a higher capital base in Quarter
2. This makes our business model very sustainable.

We have always been a customer centric bank build on first principle of simplifying banking
with a strong focus on delivering customer delight. I am happy to say that we have added over
3.4 lakh customer (the AU family) in the last quarter. Our bank campaign ‘Badlaav Humse Hai’
is furthering our reach. More on quarter highlights will be covered by Uttam.

Further our tech led business, to further our customer convenience, I am very happy that way
our credit card, video-banking, UPI QR and AU digital team are shaping up to stitch together
our tech priorities. We continue to invest in our tech led businesses. Simultaneously we are
keeping a close eye on the tech infra to run the bank where cybersecurity is important priority
too. Gaurav will cover this in further detail.

In our sustainable journey of building the bank, robust governance mechanism has been the
backbone of our growth since the beginning. I would like to say that the reappointment of Verma
Sir, our Chairman, has been recommended by the Board and has been sent to RBI for approval.

Two of our veteran board members Mr. Rathi Sir and Ms. Narang Madam are due for retirement
in March 2023 after a long fruitful and very impactful inning at AU, for which we are deeply
grateful. The Board will be joined by more Independent Directors in times to come.

We have built a strong leadership team at various levels and continue to invest in them, while
attrition remains a challenge. But SBU structure has further followed us to attract talent and
facilitate our leaders with ample space to express themselves and build cohesive and motivated
team which also helps in succession planning. We are increasingly becoming an ‘Employer of
Choice’ and continue to do more every quarter on our employee engagement proposition.

The journey of last five plus years have cultured us towards pursuing holistic growth and
development. We are working on every aspect which makes us more purposeful from focusing
on ESG to embracing diversity, from furthering financial inclusion to building a Digital First
bank, which I think is a great equalizer for all us.

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 AU Small Finance Bank
October 19, 2022

Furthermore, the way we have grown in last five and a half years has given us hope that we are
able to manage the current uncertain environment and navigate through the unknowns. I would
also like to share you our key learning from last 22 quarter as a bank. First of all, we strongly
believe that this platform is a public good which we deeply respect and are building carefully.
We are imbibing the key principles of banking of Samajdari, Zimmedari and Imandari in every
rights. We are not working with a quarter-to-quarter mentality, instead focusing on the long term
horizon which is required to build a bank of substance and predictability.

Governance is first, always first. We have put in place robust mechanism to manage our risks
which makes us more sustainable and trustworthy. More importantly, we are ready for short term
pains for long term gains. And we try not to heed to short term noises for long term voice.

And the way forward in my opinion, the journey of AU for next five years would be more
exciting as we not only implement the learning from these early years but also benefit from
newer growth opportunities.

We are giving impetus on scaling the Current Account channel and focusing on SMF (Small and
Marginal Farmers lending). To cater the growing demand of wealth products in the coming times
we are building our wealth management verticals. We have also decided to add ICICI Lombard
as our newest bank assurance partners, I welcome them.

The way the regulatory landscape has evolved in last six months around digital and
cryptocurrency will only be benefiting the banking industry. Recently, the regulator also has
allowed SFB to apply for AD-1 License and government agency business, and we are evaluating
both as it will be a significant boost to our platform.

In the near term, we navigate this uncertain environment, we will remain focus on executing our
strategy, leveraging our strengths of understanding the borrower's cash flow, and assessing their
business resilience amid challenging landscape. The current environment is not as severe as a
pandemic, but we are keeping a close eye on the evolving situation, we and will calibrate our
approach according to growing in a sustainable manner.

Specifically, we will be prioritizing, optimizing our cost of funds, consolidating our deposit
franchise, preserving risk-adjusted yields and continue towards our growth trajectory in a
sustainable way. Overall, I can assure you that as in the past in everything we do at the bank, the
endeavor is to build a highly sustainable and credible bank which is predictable, consistent.

In cricket analogy terms, which is near to my heart, we have managed to bat well in the initial
over despite some initial swing and seam movements and we are now in the middle over where
the team needs to consolidate the innings to play long and to build a sizable score.

Page 5 of 18
 AU Small Finance Bank
October 19, 2022

And in the end I am very thankful to all stakeholders, government, our regulators, our board, our
customers, our investors, the analyst community, my team and all the unsung heroes for
supporting and believing in us.

Thank you so much. I hand over to Uttam for the operational highlights. Thank you so much,
pleasure.

Uttam Tibrewal: Thank you Sanjay. Namaskar, and good evening, everyone. We are amidst the festivities, and I
hope that the auspiciousness of this period rubs off on all of us. I wish you and your loved ones
a very Happy Diwali and Prosperous New Year.

Over the last 5.5 years as AU Small Finance Bank, we have charted our course carefully. I am
happy to share that in Q2’FY23 we continue to deliver consistent business growth while keeping
our margins intact. As Sanjay said, the focus is to implement the learnings of our years as a bank.
To maintain our credit filters and quality of book, focus on granular customer acquisition,
customer engagement, cross sale and CASA growth. We continue to be optimistic about
opportunities and align our strengths for keeping our market position intact.

To start with, I would like to cover some key operational highlights for the quarter. In line with
building a diversified presence, the bank has made deeper inroads with 27 new touch points
added this quarter, out of which 15 are liabilities branches, eight of them being in our emerging
markets in UP, South and East India. With a view to bolster customer acquisition in urban
markets, 13 out of 15 liability branches are located in metro cities like Chennai, Bengaluru,
Hyderabad, Kolkata, etc.

Maintaining our pace from the first quarter we have expanded our deposit book by 7% in this
quarter and increased our CASA ratio from 39% to 42% on a quarter-on-quarter basis. Similarly,
our CASA plus retail TD mix now contributes 73% of total deposits. CASA deposits have grown
109% year-on-year, and 16% quarter-on-quarter against a repo rate increase of 190 bps our
incremental costs of funds increased by ~70 basis points during H1’FY23, and our overall cost
reduced by 17 bps during the same period.

After avoiding raising rates for entire of last quarter, with effect from 10th October '22, we have
increased the FD rates by up to 60 basis points for retail deposits, taking our peak rate to 7.5%
for regular customers and 8% for senior citizens. With this hike, the bank is offering one of the
most competitive FD interest rates, thereby providing an opportunity to customers, particularly
senior citizens to get inflation beating returns from their fixed deposits.

We have been focusing on improving the product mix and cross-sell to our customers with an
aim to increase average balances. Our product per customer has reached 1.63 for saving accounts
customers and 1.97 for current accounts customers excluding dormant and BSBD accounts.

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 AU Small Finance Bank
October 19, 2022

Our cross-sell efforts include disbursing 10,000 plus life and insurance policies, adding 8600
plus three-in-one trading accounts, and adding 12,000 plus Mutual Fund, SIPs during Q2’FY23.
Additionally, during the quarter we disbursed Rs. 728 crores via cross-selling of asset products
to our Branch Banking customers, a growth of 64% quarter-on-quarter.

Another key aspect of our Branch Banking strategy is sourcing of quality customers, and in the
last quarter, 66% of all savings account sourced by branch team, excluding salary accounts were
from premium category of Royal and Platinum accounts up from 59% in Q1.

We have just launched our newest product for our current account customers called Platinum
Business Account. This is a premium product with industry leading features designed to provide
a lot of flexibility to our small business customers, with plug-and-play features around Cash, QR
Codes, Digital Solutions and Pricing. This will provide added momentum to our current account
journey, where 37% of our CA customers already hold high value variant of our current
accounts.

Our Digital Initiatives, AU 0101 App, Video Banking, Credit Cards and UPI QR have played
an important part in improving customer experience and engagement. On saving accounts, our
transacting customers have increased to 56% with an average of 28 transactions in a month.
Further, approx 72% of the current account customers were active on Internet and Mobile
Banking in Q2. This reflects the shifting preference of customers for primary banking with AU.

Another engagement tool, AU Shopping Dhamaka is now in its fourth edition and is currently
live, with very attractive offers, across platforms for this festive season, helping us engage more
with our customers.

Moving to our Asset SBUs let me start by updating you on our wheels business. As an industry,
vehicle sales in Q2’FY23 has grown by 16% year-on-year with more segment displaying major
growth particularly the passenger and commercial vehicle segments. Our average ticket size is
around five lakhs on disbursements, and Rs. 2.6 lakhs at portfolio level excluding two-wheelers.

This quarter, we disbursed Rs. 3,542 crores with an IRR of 14.29% which was an increase of 35
bps sequentially. This also illustrates the ability and strength of our business model to transition
price volatility.

I am pleased to share that as of 30th September 2022, the wheels portfolio hit a milestone of Rs.
20,000 crores through 7.81 lakh live loans, comprising of 53% new vehicles, 35% used and
refinanced, 10% tractors, and 2% two-wheelers. Out of this Rs. 16,000 crore is contributed by
the new book generated post April 2020, which continues to display robust asset quality at
GNPA of 0.65% in line with our expectations. Overall collection efficiency for wheel business
was 107% for the quarter. This also led to improvement in GNPA to 2.24% from 2.30%
sequentially and from 4.31% a year ago.

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 AU Small Finance Bank
October 19, 2022

Moving on to Secured Business Loans, as on 30th September 2022 our SBL portfolio stands at
Rs. 17,471 crores with weighted IRR of 15%, growing 22% year-on-year. We have 1.74 lakh
unique customers with a GNPA of 2.8% as on 30th September. This quarter, we added 12,000
plus customers with 76% new to bank with an average ticket size of 11.2 lakhs. For a total
disbursement of Rs. 1,459 crores, which has increased 49% year-on-year and 14% quarter-on-
quarter. Collection efficiency for SBL business continues to be robust at 112%.

Moving on to the older but newest kid on the block, ourd Home Loans SBUs. Currently operates
out of our eight major states and our total HL portfolio was Rs. 3,365 crores as on 30th September
2022, a growth of 12% quarter-on-quarter. Our disbursement in Q2’FY23 was Rs. 498 crores,
comprising of approx. 34,000 loans with an average ticket size of around 11 lakhs. Our GNPA
on this portfolio continues to be stable at 0.44%.

Notably, being an Affordable Housing book, much of our book is also eligible for long-term
refinance from NHB. Geographically we are seeing greater demand from both urban and semi-
urban / rural areas which remain strong with the onset of the festive season.

Commercial Banking is a franchise business, which we started on the banking platform and our
two main product lines under this our Business Banking and Agri Banking. On Business
Banking, the portfolio has reached Rs. 3,837 crores as on 30th September, a growth of 18%
quarter-on-quarter with disbursement of Rs. 938 crores during the quarter. Further the portfolio
is 98.5% current, and GNPA was reduced to 0.17% on September 30th 2022, from 0.34% as on
30th September 2021.

Agri Banking business has reached Rs. 3,000 crore portfolio mark, and is growing with stable
asset quality. This quarter we saw an incremental disbursement of Rs. 486 crores due to several
conducive factors including growing our footprints in newer geographies, newer product
initiatives like Financing to FPOs, which is Farmer Producer Organizations, have started
contributing to the small and marginal farmer book of the bank.

Summing up, we are in the rising interest rate where inflation is proving to be more resilient than
initially estimated. We shall continue to monitor our competitiveness and calibrate deposit rates
accordingly, with focus remain on garnering low-cost CASA and retail deposits.

The festive season historically accounted for good business in second half of any financial year,
and we are witnessing increased demand across most of the business segments this year as well.
We continue to focus on growing our asset business sustainably with yield optimization and
keeping our credit filters intact.

While we are bullish on India, we are conscious to not get carried away by return of the credit
demand post that two years of pandemic. Till we ascertain if it is a pent-up or a sustainable
demand, we will continue to focus on our strengths and reinforce processes -- to prepare for the
next promising period of India, yet being watchful of the demand situation. As always, we

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October 19, 2022

remain highly engaged with customers on ground to gauge demand and dynamically calibrate
and optimize ourselves. I remain confident that our business model and execution capabilities,
optimistic about the opportunities and potential and yet watchful.

I look forward to sharing more with you in the coming quarters. I now invite Gaurav to share his
thoughts on our different initiatives. Thank you and take good care. Thank you.

Gaurav Jain: Thank you, Uttam. Good evening, everyone. I will now provide an update on our tech initiatives
including Credit Card and UPI QR. Tech remains an the area of key focus for the bank and we
continue to execute on our tech strategy with the objective of growing our deposit franchise,
developing unsecured lending capability and building out our digital distribution.

We soft launched AU 0101 in June '21 and did a full commercial launch in August '21, in the
middle of the pandemic, since then, our digital capabilities and key metrics have progressed
significantly.

I will take a moment to talk about three key highlights around Digital Adoption, Acquisition and
Engagement:

I) On Digital Adoption - Our Digital Adoption is 3x of June '21 levels with 14 lakh digital
customers of which 8 lakhs are monthly active. 98% transactions and 90% of service requests
are being executed digitally.

II) On Digital Acquisition - Customer acquisition through digital products has increased
significantly accounting for 42% of total customer acquisition in Q2 versus 0% in June '21. Since
the launch, we have opened over two lakh accounts using video banking, issued over three lakh
credit cards, disbursed over Rs. 500 crore of digital personal loans, and installed over eight lakh
UPI QR.

Digital Acquisition is also helping us lower our cost of acquisition, for example, digital savings
accounts were acquired at 50% lower cost of acquisition compared to our branch channels. These
digital savings accounts accounted for 38% of total savings accounts acquisition in Q2.

III) On Digital Engagement - Our digital proposition has also increased customer engagement
meaningfully. We have extended pre-approved offers to over 1.5 million customers since June
'21 off which over two lakh customers took up the offer. Monthly transacting customers, as a
proportion of total savings account customer, has increased from 47% to 56%. An average
monthly transactions per transacting customer has increased from 17% to 28%, an increase of
65%.

I will now give a brief overview of our three digital units:

1) Video banking - Video banking as a distribution and service channel, continues to improve
with the aim of making 0101 plus video banking a complete replacement of a branch. In

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October 19, 2022

Q2, video banking team opened over 50,000 savings accounts, received around 80,000
servicing and engagement calls and increased total relationship value of digitally sourced
savings account customers to Rs. 870 crore, an increase of 21% quarter-on-quarter.

Average relationship value of a digital Savings Account customer stands at over Rs. 40,000.
Combination of video banking and 0101 is also driving reduction in branch visits, which
propensity of digital Saving Account customers to visit branches being one-third as
compared with customers acquired through branches.

ii) Moving over to Credit Card, we issued over 90,000 credit cards in Q2 and crossed Rs. 500
crore of monthly spend in September. Our credit card proposition is helping us attract new to
bank customers with 47% of total cards reissued to new customers. We continue to innovate
with new product launches, let India's first customizable credit card which was launched last
quarter, continues to be very well received in the market and is now our highest selling card
variant. Our key Credit Card metrics are in line or better than industry average, with 86% of our
customers having activated their cards, and 53% customers being 30-day purchase active.

Now a brief update on our Merchant Solutions business, during the quarter we installed 1.5 lakh
UPI QR taking our installed base to 8.1 lakh. With over 1.5 lakh daily transactions, UPI QR
continues to help us drive engagement and deepening of our Merchant customers. 85% of
transactions by value were credited to link AU CASA accounts. This has helped increase average
monthly balances by 83% post UPI QR installed. We are also cautiously building out our digital
unsecured lending program for merchant. Total unsecured loan disbursement to merchants
amounted to Rs. 86 crore.

In addition to customer facing Digital Initiatives, which I just spoke about, we are also investing
in a number of areas around digitization, core technology stack and cybersecurity. Some of these
key projects include upgrade of our core banking platform, which we expect to go live in the
next few months, implementation of data platform which would unify all of banks data in one
place, and enable development of next level of analytics capability in the bank.

Implementation of a new loan origination system for wheels business on the Salesforce platform,
this would better equip our wheels team for faster onboarding of customers. And finally, our
Cloud Migration project, which would be an ongoing initiative for next couple of years and
include both migration of selected existing applications to Cloud as well as onboarding new
applications on Cloud.

To conclude, Q2 was another quarter of solid execution, and we continue to progress in our
digital journey. With this, I will now hand over to Aseem for Q&A.

Aseem Pant: Thanks Gaurav. Faizaan we can start the Q& A.

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October 19, 2022

Moderator: Thank you very much. We will now begin the question-and-answer session. The first question
is from the line of Renish from ICICI. Please go ahead.

Renish: Just a couple of questions, one is on the disbursement number so which has been segmented
around Rs. 8,000 crore from last couple of quarters. And when we look at the sequential growth
in the wheels and the SBL portfolio, which is almost 70% plus of our portfolio is around 2%
growth. So, what is happening on the disbursement side, I mean, why it has been stagnant, and
particularly within the segments why wheels and SBL is still sort of showing the muted growth?

Sanjay Agarwal: We don't think that our business disbursement are stagnant, because we have one yearly plan in
place and by that numbers we are growing every quarter. And of course, wheels and SBL, both
businesses have some size, and we have grown so much well in last five years. So, we just want
to take the risk management and the whole controls and all those things to really see that we
don't build wrong book in a good time.

So, I think we are absolutely on track because we have lot many books to offer. We do wheels,
we do SBL, we do home loans, we do commercial banking, credit cards. So, we need to figure
out and that's why we started all those different product so that we have a very balanced growth.
So, I think we are absolutely in course of the yearly numbers. I would say that generally in first
six months, we do around 40% to 45% of business. So, in that sense, I would say you will see
lot much growth happening in next six months, in comparison. So, that's the sense I really want
to build where every product want to contribute in the journey of growth.

Renish: And secondly, on the Business Banking and Agri SME, this book has been growing at a pretty
faster clip from last six, seven quarters. So, if you can just throw some light in terms of let's say
the tenure and the kind of customer segments where we operate, because when we look at the
yield on the business banking, it is around 10%, 10.5%. So, I would say it is one notch below
then what leading participant banks are tapping. So, maybe if you can just throw some light on
the customer segment and the latest maybe the collection trend or any data point which you can
highlight?

Vivek Tripathi: So, both Business Banking, Agri Banking, both are primarily working capital books, and the
average ticket size for both vertical ranges from Rs. 80 lakhs to Rs. 1 crore kind of a thing. So,
it has more component fund based and non-fund based. It's a pretty normal working capital
business where most of the facilities are renewable at the one year, it has a smaller component
of CAPEX loans which typically are brownfield sort of expansion or some equipment or
machinery purchase kind of a thing. But broadly, it’s a business where, we also get a lot of cross-
sell opportunities with the same customer base, has good amount of deposit from the same
customers. And as far as the yield is concerned, we have to look at from the spread perspective
because these are low Opex business as well.

And just want to add on like you know these are not one notch below the other private sector
bank customers because lot much formalization has happened after GST in last five years, and

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here also we are using our distribution because we are more dominating in the core which is the
semi-urban rural area where also we have seen lot much formalization happen, people didn't
have any kind of leverage on their balance sheet, but in last five years, their business has come
everything on a formal side, they require cash credit and all those things, and we are able to price
the risk, and we are able to actually price our positioning as a franchise. So, I would say that
again, I won't say that it’s a below level of any private sector bank because our net NPA in
Business Banking book is around 0.16 right at a rate of 10%. So, very comfortable in this kind
of positioning and I strongly believe that India in MSME and SME in next decade will do
wonders.

Renish: Is there any geographical let’s say concentration, maybe a Business Banking, Agri SME,
Rajasthan outside Rajasthan, if you can give some data point around that?

Vivek Tripathi: See typically our asset business are distributed between Rajasthan, MP, Delhi NCR, Punjab,
Haryana, Gujarat and Maharashtra. So, that is where it is spread out. As new geographies are
very new and wherever the branch banking because this business would be a branch centric so,
wherever the branch banking franchises would progress, these business would follow the suit.

Prince Tiwari: So, Renish, two data points, on the first question you have to also understand, we also securitized
about Rs. 700 odd crores during the quarter from the wheels business. So, that will also impact
the gross advances, and as far as what Mr. Vivek ji said that you know the entire Business
Banking, Agri Banking, geographically it would be very similar to the overall book.

Moderator: Thank you. The next question is from the line of Ratik Gupta from Guardian Asset Management.
Please go ahead.

Ratik Gupta: So, we have reductions during the period of approximately Rs. 234 crores, so I just wanted to
understand how much will be the write-offs or the recoveries from this, if you have the breakup?

Prince Tiwari: This data has been given on Slide #26; we have done a Rs. 23 crore write-off.

Ratik Gupta: And I wanted to understand, if we have a deposit rate being fixed, and with the increase in repo
rate, we still don't see cost of funding or that increased level. So, I just wanted to understand a
picture of it, so, how is the incremental cost of funds going down and the repo rate has been
increasing?

Prince Tiwari: No, so incremental cost of funds hasn't gone down, incremental cost of funds have gone up ~70
basis points.

Ratik Gupta: Cost of Fund

Prince Tiwari: See total cost of funds, there is a base effect, there is an AUM and the overall cost has been
coming down for us, if you look at for last two years. So, prior to pandemic, we were at about
7.5%, last full year the cost of funds were about ~5.9%. So, an incremental cost of fund if you

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see we started the year at about 5.3. So, to that extent, it has just been an mathematical
adjustment.

Yogesh jain: So, lot of old money is still there, because of that my cost is coming down, but if you will see
when we started our year, we started from around 5.65, which is now 5.8. So, in six months our
overall cost had increased, but it is still since we have low cost old money in system. So, that is
why my overall cost is still 17 basis points below than what it was in last year.

Moderator: Thank you. The next question is from the line of Prabal from Ambit Capital. Please go ahead.

Prabal: My question is on the SA deposits, so very strong growth sequentially and year-on-year. But if
we see the monthly growth in the balance sheet as well that is also very strong. So, just want to
understand what is driving this increase in the balance sheets per customer or we are also able
to see mobilization of more customer base.

Rishi Dhariwal: See, we continue to acquire customers in our Royal and Platinum offering products, which is
what is finding good traction with customers. The second is that we have increased our branches
in urban markets by almost 130 branches over the last two years, which is similar to reach out
to customers in newer geographies and the expanded distribution, adds to our ability to source
more and more Savings Account.

The third is that the savings customer and the deposit customer are, two very, I mean they are
two different groups of people, there are different groups of people who typically keep money
in savings. The customers who typically book deposits are the ones who are senior citizens and
people who want to save money for slightly longer term. So, we have been able to sort of ramp
up our savings accounts acquisition and that is showing the growth in savings.

Prabal: Okay. and what was the cost of SA deposits, if you have the number?

Prince Tiwari: So, 5.5%.

Prabal: The question was that we have seen reduction in employee whereas the employee cost have gone
above 15% Q on Q. So, what can explain that?

Prince Tiwari: Obviously, employee cost is more a function of, there is annual appraisals and those things
happen predominantly for us, it happens in Q2. So, that would be part of the reason, but nothing
extraordinary there. Of course, in terms of overall capacity addition point of view, we had some
excess capacity during the COVID days. So, because of that, we have obviously been looking at
focusing a lot on productivity and rationalizing some of those manpower, looking at the overall
environment, and then inflation has always played a role, right, because the appraisals typically
would follow in this quarter and given the inflation that's happening, given the entire talent
crunch that's happening across, you would see a natural cost increase. So, that's what it is,
nothing else to read into it.

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Vimal Jain: In addition to that, actually, you are comparing the cutoff date numbers, whereas total cost paid
for the employees is (for) around 700 more than average of the last quarter. So, that is why this
cost has increased. So,closing numbers, is reduction of 1200 number, but in average its 700 more
than last quarter.

Prabal: So, is it fair to say that Rs. 450 crore number is not sustainable and can improve quarter-on-
quarter from here onwards?

Prince Tiwari: No, what we are saying is that ultimately see the employee wage bill would typically follow the
inflation cycle and where the entire employee base is going to grow. What Vimalji just
mentioned that the reduction in the employee base has happened towards the quarter end number
that you are seeing. If this sustains going forward, then obviously you will see some amount of
impact. But in case depending on the business requirement and how the overall environment
shapes up, if we decide to further increase our hiring, then obviously that will also have an
impact. So, we will have to see how we go along.

Prabal: And on the other OPEX so any targets on cost to income because now that is almost 4.5% to
average assets so I understand….

Prince Tiwari: Prabal, if I understood your question, cost to assets is typically something that we don't track.
We track cost to income ratios, which we have already talked about in the presentation, and also
given a guidance and touched upon in MD’s speech. It's definitely outside of our comfort zone
and we are working on it, and you would see there has been a reduction quarter-on-quarter. And
we will continue to do our best to bring it down to our guidance range of about 62% odd.

Prabal: And this 62% odd would be because of improvement in income and not because of the reduction
in the cost of the investment --?

Prince Tiwari: No, both actually because in the 1st Quarter also, if you see there was an impact on the income
right.

Moderator: Thank you. The next question is from the line of Anusha Raheja from Dalal & Broacha. Please
go ahead.

Anusha Raheja: Yes, I am saying over the next two to three years, when you feel that operating leverage will
kick in, and you will have material reduction in the cost to income ratios?

Sanjay Agarwal: So, again, you know that there were so many unknowns in the last two to three years, right due
to pandemic and now also you are seeing a lot more uncertainty around the future growth, but
we as a bank need to always capitalize ourselves to really sustain. So, if you ask me that, whether
we will have an operating leverage in two to three years, I will say let’s give us another three to
five years, because in that timeframe we will have a sizable business in place, there will be more
loans in place, and I think I would say not 2 to 3 years but maybe in three to five years, you will
see operating leverage helping us to build a better ROA.

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Anusha Raheja: I mean, definitely you are in an investment phase currently and that's positive, but any number
to put up over the next three years? What internal number that you are looking at, or any ballpark
number to put there?

Sanjay Agarwal: So, give us some more time, because it's difficult to predict, as of now, because of this, continued
inflation. We are into investment phase, our credit card business, we do banking business, the
whole tech business is coming up to a size and shape. So, I think it’s difficult to predict to be
very honest. But we are not out of the course, we are not running a very high cost around it. If
you take our investment cost say around 55% to 56%. So, I would say that, next three to five
years we will have some kind of operating leverage there. But it's difficult to put a number
around it as of now.

Moderator: Thank you. The next question is from the line of Dhaval from DSP Mutual Fund. Please go
ahead.

Dhaval: I just had one question relating to the PSLC income. In general, like for the first half we have
seen a very low number. So, could you just comment, what is driving this run rate. And if you
can give some perspective --?

Yogesh Jain: So, PSLC is just I think market factor, and every quarter we see how market is behaving, what
are the rates, premium available. So, if you will see 2nd Quarter premiums were very muted,
micro and general were happening on 2 paisa to 1 paisa. So, we decided that -- and we will see
next quarter. So, we have PSLC portfolio available. But since rates were not there, we will figure
out in next quarter. But as we mentioned in our presentation, that we securitized some of our
portfolio to get some rate advantage. So, we will balance between PSLC and securitization going
forward also.

Dhaval: And the second half should be significantly better than the first half in terms of PSLC?

Yogesh Jain: There is no such benchmark because earlier 2nd Quarter was better, last year. So, there is no
benchmark, we will see each quarter and then accordingly, we will figure out.

Moderator: Thank you. The next question is from line of Darpin Shah from Haitong India. Please go ahead.

Darpin Shah: So, my question is towards growth, now while you are talking about uncertain times and
preserving our yields and consolidating deposit franchise, should one assume that even the loan
growth from here on will moderate or will still continue the way we have seen AU in the previous
years?

Sanjay Agarwal: No, so I would say that, that’s why we call it uncertain time, because we are not able to predict
and there are certain headwinds like inflation, interest rates, liquidity, right. And you know that
our asset growth is driven by the deposit growth, we can't grow asset on it’s own right. And
deposit is pricey now. So, we don't want to raise money at any cost and want to lend it at any
kind of rate. So, we really want to protect our NIMs and our ROE and ROA. So, that is why we

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are saying that we want to really see that how the growth happens, it has to be profitable, it has
to have some kind of numbers around it. As I told you that generally we do 40% to 45% of
business in 1st Quarter, that makes a very healthy growth rate in this year itself. So, there is a
demand but we just don't want to rush ourselves. Because I strongly believe of my experience
of 25 to 26 years that bad books are built in good times. So, we don't want to do anything like
that. And so there is growth, but we don't want to say that, we really want to grow out of that
right. So, that's our positioning. But we are growing well and we believe in that, that any
sustainable, reasonable growth can be manageable and sustainable.

Darpin Shah: Just one last data keeping question, how much was the slippages from the restructured book
during the quarter.

Aseem Pant: That was Rs. 58 crores.

Moderator: Thank you. The next question is from the line of Nilanjan Karfa from Nomura. Please go ahead.

Nilanjan Karfa: Just two sets of questions. I mean, it just seems to me being a little more cautious, quite a few
times, we heard building bad book during good times, which is a fair comment. But therefore,
just trying to get a context of what kind of growth are you actually looking at for this year and
maybe in the next year as well?

Sanjay Agarwal: So, I am just repeating back, generally we do 40% to 45% of business in H1, and that makes us
around 12% or 13% growth itself, we are already delivered. So, if you mathematically
calculated, it will be around 27% to 28% kind of growth this year. And my point is not that that
we don't want to grow in that aspect anything around 27% to 28% even 30% is good enough.
But the idea is to really grow at some kind of strategy, because we can't raise money at any cost
and we just don't want to lend at lower rates. So, we really want to protect our NIMs, our ROA
and that is why we are saying that there is enough demand available, but demand has to be
profitable for us. And in past we have done that, even in my NBFC days, there was a good time,
but we never ever gone to the market demand. I always try to build our own strategy and work
upon those lines.

So, my, my sense is that we are on right course, we have a very long term vision to build this
bank. We need to see the cycles, the team need to understand, team need to hold on and see
through every up and downs of the bank journey to really become a more long term franchise,
which makes you very sustainable and predictable.

Nilanjan Karfa: If I can just kind of expand the question, I mean, is there something in the environment that you
are a little worried about?

Sanjay Agarwal: In my opinion, inflation remains like this, and there is an elevated interest rate and then it will
eat up your wallet so how the people will pay the EMI. If suddenly, the crude goes up to $120
to $130 per barrels, then what we should do because we are running a vehicle book, we are

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running a SBL book. So, we need to be cognizant of the fact that how inflation remains for next
six months. The policymakers are doing their best, but the demand is like this. And what I want
to say is just that while you grow, let's grow sustainably. So, when you have a lot, much demand,
you can pick and choose. So, we are doing that and in that, we really want to calibrate ourselves,
let's price rates, let's understand customer more, let's see that even on a high inflation, high
interest rate cycle, whether it’s okay to pay EMI. So, I think that kind of understanding we are
building internally.

Nilanjan Karfa: The second question is, I don't know if you will be able to able to share, in the 4th Quarter we
did that the OPEX movement between ‘21 and ’22, split out between three or four different
components, possible to get it in the first half how this has moved?

Prince Tiwari: We have given the data, I mean not in so many words, but the number is definitely there, it’s on
Slide #15 around Rs. 125 crores of the incremental expenses has been towards investments and
the breakup is there on that slide.

Aseem Pant: That’s for Q2 and similarly you can find for Q1 in Q1 presentation.

Moderator: Thank you. The next question is from the line of Sarthak an Individual Investor. Please go ahead.

Sarthak: My question is to Sanjay sir. So, can you give me approximate expense towards the fund raised
and what ROA would have been barring this exceptional item?

Sanjay Agarwal: Oh, specific data right you want –

Prince Tiwari: So, we have already disclosed that. No, so the exact number is already disclosed in the placement
document that is as per requirements of SEBI. So, broadly it was around 1% if I remember
correctly, just a tad above 1%.

Sarthak: Around Rs. 20 crores you mean to say.

Management: Yes, Rs. 23 crores, if I remember correctly.

Sarthak: And my question is to Sanjay sir, so I being a retail investor, it's very difficult for me to calculate
each and every moving item in P&L. So, I just want to get a sense that what our sustainable
ROA would be for like two to three years, and then once operating leverage kicks in, after three
to five years, just give a sense, a number, a range?

Sanjay Agarwal: So, I would say that, you have to see our last five year working that gives you enough guidance,
because we always remain north of 1.7 to 1.8 of ROA, (RoE) north of 15%, initially, our journey
of last five years. So, Sarthak to be very honest there are so much moving items like how the
interest rates will play out, we invest in so much of digital capabilities, like pandemic happened.
And there are lot much unknowns which happen to us in next five years favourably. So, if you
ask me specifically, it's difficult for me to comment, but the last five years, number, data should

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give you confidence that this franchise is very sustainable, because we have figured out, the asset
franchise, way to lend, at what rate we want to lend, what our NPAs can be, because what not
we have seen in last five years. So, our asset franchise is very solid and very strong. Our deposit
franchise in last three years has completely gone through a complete change, from a wholesale
franchise to retail franchise. So, that is also enabling us to manage costs in spite of this inflated
rate. And then again, our digital properties are coming up. So, I think all put together and I
strongly believe that anything what we have achieved in last five years should be there on table.
But anything can happen better from here.

Sarthak: So, maybe once operating leverage kicks in, 2% plus ROA is also possible, 2 to 2.2 or 2.3
something like that?

Sanjay Agarwal: Difficult to comment for me, but let's hope for the best.

Moderator: Thank you. As there are no further questions from the participants, I now hand the conference
over to Mr. Aseem Pant for closing comments.

Aseem Pant: Thank you everyone, for joining us and for your support. On behalf of the entire AU team, we
wish you a Happy and Healthy Diwali. Please reach out to the IR team for any further questions.

Moderator: Thank you. Ladies and gentlemen, on behalf of AU Small Finance Bank, that concludes this
conference call. Thank you for joining us, and you may now disconnect your lines.

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