Series of top-level exits at AU SFB raising eyebrows!
The resignations in audit and risk functions may raise investor concerns about the sanctity of the books and risk management practices
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Mumbai: SumitDhir, who was recently hired by AU Small Finance Bank (SFB) as Chief Audit Officer (ex-KMB with 19 yrs of experience), has resigned from the post. He was hired to replace chief audit officer, Nitin Gupta, who resigned four months ago. This is the third top-level exit at AU SFBafter Alok Gupta (chief risk officer) and Nitin Gupta.
Experts have citied the reason as steadily rising asset-quality concerns (higher NPAs + RSA +ECLGS) amid the Covid induced disruption, the series of resignations in the audit or risk functions and delayed disclosure of these resignations have irked investors.
"We believe the bank's rich valuations (4.4x FY24E ABV,pre-correction) leave no margin forerror. This was reflected intoday's stock reaction - ~13% correction in the stock price at day's close," an Emkay analyst said.
Management clarification to the stock exchange has confirmed hisresignation. It has mentioned that Sumit Dhir expressed his desire to move back to his hometown (Delhi) due to changes in his personal circumstances post Covid-2.0, but the bank is trying toretain him. Change in personal preferences of an incoming candidate atsuch an important position in such a short span of time raisesquestions on hiring policy. Notably, personal health reasons werecited after resignation of Chief Risk Officer as well.
As per our discussions earlier, management had clarified that it hashired about 100 people in the recent past and some may have left dueto the misalignment with respect to expectations. According to them, poaching by peer banks has been rising too, leading toincreased attrition, the analyst added.
Emkay believes the resignations in audit and risk functions may raiseinvestor concerns about the sanctity of the books and risk managementpractices. However, management has tried to allay such concerns andindicated that there were no red flags by the RBI in its recentlycompleted audit.
Experts believe that possibly aggressive management style, and more soin the transition to a Universal Bank call for stricter riskmanagement and compliance practices, could have partly contributed tothe resignations.
The bank has steadily ramped up its liability profile, with the CASApool standing at 26 per cent, but it still remains sub-par compared tobest-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, experts said.
The bank said in a statement that "we categorically want to confirmthat there is not a single other resignation in the top-50 seniormanagement team or the board of Directors. The senior management team(top-50) has an average vintage of ~6.5 years with AU and remains veryexcited around our journey to create a leading banking franchise. Somechallenges remain around Jaipur location which we are addressing byscaling up Mumbai and other regional offices at key cities (likeDelhi, Pune, Indore, Chandigarh etc). We had disclosed thisconsideration in our Q1 earnings call on August 06 and AGM on August17.
As the largest SFB, AU has successfully attracted talent over the last12-18 months. During this period, the Bank strengthened its seniormanagement team with 100 hires at senior positions in Tech, Sales,Risk, Audit, Credit, HR, and Control positions including ChiefTechnology Officer, Chief Digital Officer, Lead - tech initiatives and distribution strategy, Head of Agri Business, Chief Risk Officer (CRO), Chief of Credit–Commercial Banking, Chief HR Officer, Headof Internal Audit, Head of IT Audit and Head of Legal amongst others.
Business continues to perform well as per our commentary in Q1earnings call. Asset quality remains stable and last two monthscollection have given us further confidence. AU remains an attractivefranchise for talent, it added.
A source in the bank told Bizz Buzz that "We have clarified to the stock exchanges this evening. Purely personal reason, he and his family could not adjust to local Jaipur environment. Bank tried hard toretain him. Financials and asset quality strong, no doubtand bank is still talking to him and no finalcall has been taken."
