AU Small Finance Bank Limited

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.

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.

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.

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 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.

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.