AU Small Finance Bank: From top level exits to concerns around disclosure, what’s leading to the fall in share price

AU Small Finance Bank: From top level exits to concerns around disclosure, what’s leading to the fall in share price

Last updated: 01 Sep, 2021 | 04:22 pm

AU Small Finance Bank: From top level exits to concerns around disclosure, what’s leading to the fall in share price

Shares of AU Small Finance Bank have been in focus in the week, after speculations around top level exits in the company. However, the shares rebounded slightly on Wednesday, after the management clarified on the reasons for the exit. 

What is the main issue around these high profile resignations?

  • The company’s Chief Risk Officer Alok Gupta had resigned in July. However, AU Small Finance Bank informed the exchanges only on 29 August. 
  • Investors are concerned that the bank did not make timely disclosure, leading to the fall in stock price on Tuesday. 
  • This is the second major high profile exit in the company. Nitin Gupta, the former Chief Audit Officer resigned in March-21 and moved to competitor Equitas Small Finance Bank
  • Further, the bank’s internal audit head Sumit Dhir, has also resigned. Meanwhile, AU Small Finance Bank has said that it is in talks with Dhir for a potential retention. 

Management clarifies on these exits 

AU Small Finance Bank CEO Sanjay Agarwal tried to allay investor concerns around these exits and disclosure worries. The bank also made a press release clarifying its position. Here are the most important highlights from these releases: 

CRO’s exit

  • AU Small Finance Bank said that  the CRO Alok Gupta was hired in April-21, to replace Mr. Mayank Markanday. Alok Gupta belongs to Mumbai, while AU Small Finance Bank is headquartered in Jaipur. 
  • Alok Gupta said that due to the impact of the 2nd wave of Covid and his other personal circumstances, his movement to Mumbai was inevitable. 
  • While AU Small Finance Bank made every possible effort to retain him, Alok Gupta resigned on July 14th due to his personal constraints. 
  • The management clarified that the delay in disclosure was because it was making efforts to retain the employee. “Announcement based on just an expression to quit would be difficult,” said the company, adding that it is a simple HR issue and not of any lapse in governance. 

Exit by Internal Audit Head  

  • On similar lines like Alok Gupta, Sumit Dhir (Head of Internal Audit) has told the bank that he would like to move back to his hometown Delhi due to changes in his personal circumstances following Covid 2nd wave. 
  • However, Dhar continues to be on the rolls as Head of Internal Audit and the bank remains in discussions with him for a possible retention.

INDmoney Analysis

  • In the current scenario, many organisations are providing the option to Work From Home. A lot of concerns are being raised as to why this option wasn't extended to employees.
  • AU Small Finance Bank said that while the company allows employees to work from home, it was not possible in these specific high profile roles. “The entire regulatory supervisory framework is based out of Jaipur. We want to build our businesses based out of this state only,”  said the company’s CEO. 

Outlook going forward

  • The shares of AU Small Finance Bank closed 2% higher on Wednesday, after the bank clarified on the recent exit from its management team. 
  • AU SFB said that there is not a single other resignation in the top-50 senior management team or the Board of Directors.
  • While there are some challenges around the Jaipur location, the bank is scaling up Mumbai and other regional offices at key cities (like Delhi, Pune, Indore, Chandigarh etc)
  • Once the clamour around these high profile exits settles, the focus would shift back to the bank’s earnings and asset quality.