AU Small Finance Bank expects to invest over Rs 500-700 crore to scale up its digital banking and information technology over the next three-five years, taking the total tech spending to over Rs 1,000 crore. This would mean its cost-to-income ratio may remain above 50 per cent in the medium term.
Sanjay Agarwal, managing director and chief executive, said the lender was in a growth phase and is spending to achieve digital ambitions. Also, human resources need a lot of support. The cost-to-income ratio has gone up from 52.4 per cent in FY21 to 57.1 per cent in FY22.
While the cost of income ratio may not have peaked, it is close to it. It takes three-five years to see benefits of the investments. The bank is building digital ambitions with a five to seven years’ horizon in mind, Agarwal said. The bank unveiled a new credit card offering called Live-It-Today (LIT).
The Jaipur-based lender has spent close to Rs 500 crore in recent years on the digital infrastructure. There is a plan to enhance super apps functionality, also of QR code, credit cards and data analytics capability. It estimates that about Rs 500-700 crore is required in the next three to five years to build this up.
Agarwal said while interest rates have been on rise, the bank has managed cost of funds very well till now. It still has scope available as cost of funds is 5.7-5.8 per cent. Also, the bank is working more in building current account money, which will help to manage costs. Banks do not pay interest on the money kept in current account. This pool of liabilities, along with savings account, forms part of low-cost funds.
As for building CASA, Agarwal said the idea is to be higher than 40 per cent in the next couple of years. Its share of low-cost money increased sharply from 23 per cent at the end of FY21 to 37 per cent by March-end.