AU Small Finance Bank Limited — Q1 FY27 earnings call

Call held 25 Jul 2026

Management summary

AU Small Finance Bank reported a strong Q1 FY27, with profit growing 37% YoY to INR796 crores, driven by robust deposit and loan growth of 24% and 23% respectively. NIM expanded 47 bps YoY to 5.9%, and ROA/ROE improved significantly. While facing geopolitical uncertainty and tight liquidity, the bank continued its digital transformation and strategic expansion, though QoQ margins saw a slight moderation and cost to assets ratio marginally increased.

Highlights

  • Profit for the quarter grew by 37% year-on-year to INR796 crores.

  • Deposits growth remained robust at 24% year-on-year to INR1.58 lakh crores.

  • Loan portfolio grew by 23% year-on-year, with secured assets growing by 25% YoY.

  • Net interest margin increased by 47 basis points year-on-year to 5.9%.

  • ROA for the quarter was 1.7% versus 1.5% in Q1 last year, and ROE was 15.6% versus 13.3% in Q1 last year.

Concerns

  • Q1 was marked by heightened geopolitical uncertainty arising from the ongoing West Asia crisis.

  • Liquidity conditions remain relatively tight with heightened competition for deposits and elevated interest rates.

  • Cost to assets ratio (excluding CGFMU premium) was 4%, up marginally from 3.9% last year.

  • Margins declined by 7 basis points quarter-on-quarter to 5.9% due to reversal of certain seasonal benefits.

  • PAT for the quarter included an additional one-time provision of INR23 crores from further strengthening of NPA provisioning norms in selected products.

Key financials

  1. Profit After Tax ₹796 Cr +37%YoY
  2. Deposits ₹1.58L Cr +24%YoY
  3. Loan Portfolio Growth — +23%YoY
  4. Net Interest Margin 5.9% +0.47%YoY
  5. Return on Assets 1.7%
  6. Return on Equity 15.6%

What they filed

Q1 FY27: revenue up 21.1%, net profit up 37.0% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue3,911 4,113 4,271 4,378 4,511 +15%4,727 +15%5,019 +18%5,303 +21%
Net profit571 528 504 581 561 −2%668 +27%832 +65%796 +37%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • Deposits by Vertical
    60% Branch Banking Share21% Government & Interbank Share7% Commercial Banking & Wholesale Share8% Financial Institutions Group Share
  • Asset Portfolio
    67% Retail Secured Assets Share23% Retail Secured Assets Growth₹48,600 Cr Wheels Book28% Wheels Book Growth₹4,500 Cr Gold Loan Business130% Gold Loan Business Growth12% Mortgage Business Growth₹32,800 Cr Commercial Banking34% Commercial Banking Growth15% Inclusive Banking (MFI) Growth24% Personal Loan Business Growth

Capital allocation

high confidence
  • Liquidity Liquidity disclosed LCR range is around 115 to 120 and NSFR typically is about 105 to 115. FCNR rates have been increased to 7.4-7.5% due to challenges in getting leverage from customers.
    Prince Tiwari: "LCR range is around 115 to 120 and our NSFR typically is about 105 to 115. That's where we range." Sanjay Agarwal: "we have actually have increased our FCNR rates to now 7.5 if I'm not wrong, 7.4, and we believe that because of our brand, because of our acceptance we will raise some sort of money. But we are not targeting now a specific one because if you don't have a leverage, it's difficult to convince the customer."

Guidance & targets

Operating Efficiency

  • Cost to Assets Ratio Operating Efficiency · full-year basis · Medium confidence Improvement
    Operating leverage continues to play out on underlying basis and we expect cost to assets ratio to improve on a full-year basis.

    — Gaurav Jain

Distribution

  • New Deposit Branches Distribution · this year · High confidence 100+
    During the quarter, we added 16 new deposit branches and remain on track to add another 100+ branches this year.

    — Gaurav Jain

Profitability

  • Other Income Profitability · next 6 to 9 months · Medium confidence Improvement
    I think the other income also has not been up to the mark, right? So I believe other income will should also come in next 6 to 9 months period, right?

    — Sanjay Agarwal

Asset Mix

  • MFI Book Share Asset Mix · Medium confidence 10%
    MFI. Yes. Overall, as a component, we have publicly announced that it could go up to as high as 10%.

    — Sanjay Agarwal

Credit Cost

  • MFI Credit Cost Credit Cost · High confidence 2.5%

    Previously 3% → 2.5%

    I don't think now 3% is the right optics. The credit cost around the guarantee and of course whatever is left out. So it may be 2.5.

    — Sanjay Agarwal

Market context

  • GDP Growth Rate Multiplier Growth · next 10 years · Medium confidence 2x to 2.5x
    sustainably compound at 2x to 2.5x of India's nominal GDP growth rate

    — Sanjay Agarwal

What to watch in Q2 FY27

ECL framework impact quantification

end of Q3
Current Preliminary stage, not quantified
Target Quantification and 'colors' by end of Q3

Why it matters

To understand the potential one-time and steady-state impact on credit costs from the new regulatory framework.

Vivek Tripathi: "closer to maybe end of Q3 or something, we would be in a better position to tell you... we'll definitely give you some colors by end of Q3."

Risks & concerns

  • Geopolitical uncertainty (West Asia crisis)

    medium

    Heightened geopolitical uncertainty arising from the ongoing West Asia crisis.

    Management acknowledged

  • Tight liquidity conditions and heightened competition for deposits

    medium

    Liquidity conditions remain relatively tight with heightened competition for deposits and elevated interest rates.

    Management acknowledged

  • Credit card business currently loss-making

    medium

    Credit card business is currently loss-making, impacting overall unsecured book profitability.

    Management acknowledged

  • Unquantified impact of new ECL framework

    medium

    Management is still in preliminary stages of quantifying the impact of the new ECL framework on credit costs.

    Analyst acknowledged

  • Marginal increase in Cost to Assets Ratio

    low

    Cost to assets ratio (excluding CGFMU premium) was 4%, up marginally from 3.9% last year, driven by investments.

    Management acknowledged

  • Quarter-on-quarter NIM decline

    low

    Margins declined by 7 basis points QoQ to 5.9% due to reversal of certain seasonal benefits.

    Management acknowledged

Q&A highlights

5 direct, 1 evasive
Digital unsecured book profitability and risk-adjusted yields Partial
both these businesses, as you know, credit cards as well as PL, is relatively newer businesses for us and still just coming up the curve, right? So I don't think it's the right metrics right now to look at what's the risk-adjusted yield there because credit card went through a cycle... So, let these businesses get built out because they are currently loss-making, right? So credit card is, PL is obviously breakeven.

Management clarifies that credit card business is currently loss-making and personal loans are at breakeven, impacting overall unsecured book profitability and risk-adjusted yields, and that it's too early to assess true risk-adjusted yields.

Asked by Renish

NIM trajectory for next two to three quarters Evasive
it's always difficult to predict margins because of multiple moving parts. So I don't want to give you any sort of directional guidance on that. But what we know is cost of funds has effectively bottomed out as we mentioned last quarter as well, and we've taken some increase in both savings account and deposits rates, right?

Management avoids giving specific forward NIM guidance, indicating uncertainty or caution, though they suggest cost of funds has bottomed out.

Asked by Renish

Impact of new ECL framework on credit costs Partial
for us, it will be difficult to quantify at this moment. We are refining our LGD and PD models... But given as we speak, at this moment, there is a greater comfort from Stage 3 which should cover up Stage 1, Stage 2 incremental provisioning, right? ... closer to maybe end of Q3 or something, we would be in a better position to tell you... we'll definitely give you some colors by end of Q3.

Management expresses comfort due to current tight provisioning and low LGDs but cannot quantify the ECL impact yet, promising an update by the end of Q3.

Asked by Jayant Kharote

Contribution of newer geographies to incremental business growth Direct
on a design principles, we are more of a north and west franchise till maybe a year back or two years back. But because of Fincare acquisition, and then expanding to more East also, and going deeper into states like UP, Bihar, so we are largely now a pan India franchise. So we are focusing that our next 10 year growth should come from all part of the country.

Management explains the strategic intent behind pan-India expansion and diversification across geographies and products, driven by the Fincare acquisition and organic growth, as a key long-term growth driver.

Asked by Akshay Jain

Decline in employee base and impact of AI Direct
May month was the first month when we actually decreased our manpower from the April month. But that is one-off honestly because I would say the backend people, we are not growing at all because we believe operations, accounts, finance these things have been taken care of by Al more. But as we are expanding in newer markets, new geographies, new products, we might want to hire people for front-ending.

Management confirms a slight decline in employee count, attributing it to AI-driven efficiencies in backend operations, while indicating continued front-end hiring for expansion.

Asked by Pritesh Bumb

Revised MFI credit cost outlook with CGFMU guarantee Direct
I think 3% when we said you it was three years back when we acquired Fincare. But I think after this guarantee came in, the entire business model has gone through a change... So it may be 2.5. But I think overall it's in the same range, but the contour has changed, the shape has changed, the form has changed.

Management revises the MFI credit cost expectation from 3% to 2.5% due to the CGFMU guarantee, indicating a structural change in the credit cost profile for this segment.

Asked by Pritesh Bumb

Details on the gold loan business (LTV, IRR, customer acquisition) Direct
Fincare had a lot of rural distribution because of microfinance branches, and it had capability to do gold loan business in the Southern geographies. And what we did was that we scaled up that across North-West region... ours is not a high-ticket business volume. Majority of book is less than INR5 lakhs. And the average ticket size is somewhere around INR2.5 lakh of the whole book. More than 80% today is a rural book, the book portfolio IRR is about 15.5%.

Provides granular insights into the gold loan business, highlighting its small ticket size, rural focus, and 15.5% IRR, driven by leveraging Fincare's expertise and pan-India expansion.

Asked by Pritesh Bumb

Technology expenditure as part of total opex Direct
It's close to INR1,000 crores. Around 12%-13%.

Quantifies the bank's significant investment in technology, indicating a strategic focus on digital transformation and efficiency.

Asked by Anuj Singla

3 min read 6 chapters

Detailed narrative

Q1 FY27 Performance Overview

AU Small Finance Bank delivered a strong Q1 FY27 performance, with profit after tax growing 37% year-on-year to INR796 crores. The bank's loan portfolio expanded by 23% YoY, while deposits grew 24% YoY to INR1.58 lakh crores. Net Interest Margin (NIM) stood at 5.9%, reflecting a 47 basis points YoY increase but a 7 basis points QoQ decline. Return on Assets (ROA) improved to 1.7% from 1.5% in Q1 last year, and Return on Equity (ROE) reached 15.6% compared to 13.3% previously.

Digital and AI Transformation Initiatives

The bank made significant progress in embedding AI and automation into core business processes, rolling out an AI-enabled gold loan origination platform and advancing AI-led transformations in vehicle finance, personal loans, and credit cards. Digital platforms continue to scale, with over 90% of transactions processed through AU 0101, and AI voice bots now support 11 languages. Technology expenditure is approximately INR1,000 crores, representing 12%-13% of total operating expenses, contributing to operational efficiencies and a slight reduction in backend manpower.

Robust Deposit and Liability Franchise Growth

Deposits grew 24% YoY and 3.3% QoQ to INR1.58 lakh crores, with CASA deposits growing 22% YoY and 4.7% QoQ, leading to a marginal improvement in the CASA ratio to 29%. The liability franchise is diversified across branch banking (60% of deposits), government and interbank (21%), commercial banking (7%), and financial institutions group (8%). The bank added 16 new deposit branches and plans to add over 100 more this year, alongside expanding international remittance offerings.

Diversified Asset Franchise Performance

The asset franchise demonstrated strong growth, with retail secured assets, comprising 67% of the portfolio, growing 23% YoY. The wheels book reached INR48,600 crores, growing 28% YoY, and the gold loan business surged 130% YoY to INR4,500 crores. Commercial banking grew 34% YoY to INR32,800 crores, while inclusive banking (MFI) and personal loan businesses also showed healthy growth of 15% and 24% YoY respectively. The personal loan book is almost entirely cross-sold to existing customers, primarily liability customers.

Asset Quality and Provisioning

Asset quality remained robust, with slippages declining 22% YoY to INR798 crores, driven by improvements in the unsecured portfolio. Credit cost, including CGFMU fee, declined by 54 basis points YoY to 0.8%. The MFI book has 96% coverage under the CGFMU guarantee scheme, which is expected to reduce MFI credit cost to around 2.5% from a previous estimate of 3%. An additional one-time provision of INR23 crores was made to strengthen NPA provisioning norms in selected products.

Strategic Leadership and Future Outlook

The bank continues to strengthen its leadership, with Mr. Yogesh Jain elevated as Deputy CEO and new appointments in Chief Risk Officer and Head of Technology roles. Management aims for the bank to sustainably compound at 2x to 2.5x of India's nominal GDP growth rate over the next decade, driven by pan-India expansion and product diversification. While ECL framework quantification is still preliminary, management expresses comfort due to low LGDs and tight provisioning, expecting to provide more clarity by end of Q3.

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