Why AU Small Finance Bank Shares Fell: Should You Sell The Stock Now  

Shares of AU Small Finance Bank Ltd. fell more than 13% on the day when Nifty crossed the 17,000 level. This came as a shocker for investors who were gung-ho about the prospects of the stock.

So Why AU Small Finance Bank Shares Tumbled

As reported by India Infoline, its Head Internal Audit at Jaipur Head Office Sumit Dhir has put his papers, ostensibly on the quality of financials.

It is to be noted that Dhir was deputed in place of Nitin Gupta, Chief Audit Officer who had also resigned in March 3, 2021.

Two consecutive resignations of Internal Auditors have spooked market participants about the asset quality and corporate governance issues.

The high-profile exit has come at a time when a bank is seriously trying to change its image and perception. It had roped Amir Khan for a full-page ad.

Concerns about the Asset Quality

Asset quality has been a concern for the company for the last few years and the stressed assets grew after the Corona period. Experts and analysts have already expressed their concerns about rising stressed assets in microfinance banks.

In the last quarter, Gross Non Performing Assets ratio increased to 4.3 percent in March 2021 quarter compared to a similar quarter last year because of poor collection caused by job losses and lockdowns.

Should You Sell or Hold AU Small Finance Bank Shares?

To enthuse participants and clear all rumours, the AU Small Finance management will hold a conference call with ICICI Securities.

To calm the nerve of investors, the management informed the exchange that Sumit Dhir has resigned for personal reasons and that it has nothing to do with any corporate governance issue.

Banking is a complicated business and nobody knows what’s actually being cooked in the books. The past experience of Indusind Bank, Yes Bank, and PNB does not give the right indication.

It’s better to get rid of the stock even if it opens a gap up or recovers, especially if you’re a retail investor. It’s more important to save the hard-earned money than speculating with a small bank having doubts of corporate governance issues. In banking, it’s highly recommended to be with big names like Kotak Mahindra Bank, ICICI, HDFC Bank, and SBI than small banks.

And once doubt originates, it’s difficult to restore investors’ trust.

The market nowadays rarely leaves without punishing on the instances of corporate governance issues. Manpasand Beverages, DHFL, and many more painful experiences in the past confirm this belief.

Also, considering the premium valuation it commands among peers, justifying this would be difficult for management.

Saurabh Mukherjee led Marcellus Investment Fund was betting big on the stock. Even many analysts were giving BUY recommendations about the stock.

It also constitutes a significant holding of 5 % in Motilal Oswal Flexi Cap-G Fund. In some other funds of Motilal Oswal, it’s a significant part. If the stock price doesn’t recover, the fund performance is likely to be negatively impacted.

Vikash Kumar

An investor with more than 15 years of experience in the market. I m deeply interested in positional and momentum-based trading strategies and love learning strategies and backtesting.

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