AU Small Finance

AU Small Finance Bank demonstrated strong performance in Q3 FY26, with its overall loan portfolio reaching ₹1,30,000 crores, marking a 19.3% year-on-year growth. The deposit base also expanded significantly, crossing ₹1,38,000 crores, up 23% year-on-year and 4.5% quarter-on-quarter, with the CASA ratio remaining stable at 29%. This growth was supported by the addition of 100 physical touchpoints, including 27 new deposit branches, bringing the total to 2,726.

The bank's Net Interest Margin (NIM) expanded by 25 basis points quarter-on-quarter to 5.7% from 5.5% in Q2, primarily driven by a 22 basis points decline in the cost of funds to 6.61%. Profit After Tax (PAT) for the quarter stood at ₹668 crores, reflecting a 26% sequential growth. Excluding a one-time^📎 provision of ₹20 crores related to the new labor code, the adjusted PAT was ₹682 crores, up 29% year-on-year, leading to a Return on Assets (ROA) of 1.6% for the quarter.

Asset quality continued to improve, with slippages declining by 13% quarter-on-quarter and the GNPA ratio reducing by 11 basis points to 2.30%. Annualized credit costs for Q3 decreased by 41 basis points to 78 basis points of average assets, with the 9-month credit costs at 1.1% of average assets. The MFI segment saw its collection efficiency improve to 99.5% in December, and 83% of the MFI book is now covered under the CGFMU Guarantee Scheme.

Secured businesses, comprising 68% of the portfolio, grew robustly at 23% year-on-year. The Wheels business grew 27% year-on-year to ₹43,700 crores, and the Gold Loan business saw a 52% year-on-year increase to ₹3,000 crores. While unsecured businesses experienced a 17% year-on-year degrowth, the MFI segment showed a 1% quarter-on-quarter growth, indicating a turnaround. New credit card issuances also strengthened to 48,000 in Q3, up from 27,000 in Q2, with expectations for growth in the next financial year.

The bank continues to invest significantly in its technology backbone, allocating 8-10% of its OPEX. This has resulted in a tech stack with 99.9% uptime and the ability to process 3.5 million UPI transactions and 10 million API calls daily. The bank is accelerating AI implementation across various functions, with an AI-powered Gold Loan LOS slated to go live in Q1 FY27, and AI-based fraud systems now auto-decisioning over 60% of alerts.

AU Small Finance Bank strengthened its governance framework by appointing three new independent directors. Furthermore, leadership changes were announced, with Mr. Uttam Tibrewal continuing as Executive Director and Deputy CEO, and Mr. Vivek Tripathi, the Chief Credit Officer, slated for appointment as Executive Director, subject to regulatory approvals. These changes aim to deepen leadership and ensure responsible scaling and stewardship of the bank's credit architecture.

Management aims for overall loan growth of 2.25 to 2.5 times the nominal GDP, translating to approximately 20-22% growth for the next 4-5 years. Despite intense competition in the deposit and lending markets, particularly in southern regions, the bank believes its strong foundation, product range (retail assets, commercial banking, digital assets, cross-sell ability), and execution mindset will enable it to lead in its competitive space. The cost-to-income ratio is targeted to remain below 60%, with an aim for 56-57% next year, driven by operating leverage and tech adoption.