Detailed Narrative
Q3 FY26 Performance Overview
AU Small Finance Bank reported a strong Q3 FY26, with deposits growing 23% year-on-year to ₹1,38,000 crores and the loan portfolio expanding 19.3% year-on-year to ₹1,30,000 crores. Net Interest Margin (NIM) improved by 25 basis points quarter-on-quarter to 5.7%. Profit after tax (PAT) saw a 26% quarter-on-quarter increase, reaching ₹668 crores, and Return on Assets (ROA) expanded to 1.6% for the quarter. The bank's cost-to-income ratio stood at 57% year-to-date.
Deposit Growth and Cost of Funds Management
The bank's deposit franchise demonstrated robust growth, with a 4.5% quarter-on-quarter increase in deposits. The CASA ratio remained stable at 29%, and new CASA account acquisitions grew by 30% year-on-year. The cost of funds declined by 22 basis points quarter-on-quarter to 6.61%, primarily due to the repricing of term deposits and benefits from savings account rate cuts. Management anticipates further benefits from deposit repricing over the next two quarters.
Asset Growth and Segmental Performance
Secured businesses, constituting 68% of the loan portfolio, grew strongly by 23% year-on-year and 6% quarter-on-quarter. The Wheels business reached ₹43,700 crores, growing 27% year-on-year, while gold loans surged 52% year-on-year to ₹3,000 crores. Commercial banking, representing 21% of the lending business, grew 25% year-on-year to ₹27,700 crores. Unsecured businesses, despite a 17% year-on-year degrowth, showed a 1% quarter-on-quarter growth, led by the MFI segment which grew to ₹6,600 crores.
Asset Quality Improvement
Asset quality continued its improving trend, with slippages declining 13% quarter-on-quarter. The Gross Non-Performing Asset (GNPA) ratio decreased by 11 basis points to 2.30%. Annualized credit costs for Q3 reduced by 41 basis points to 78 basis points of average assets. This improvement was attributed to seasonal strengthening in secured assets, normalization in unsecured segments like credit cards and MFI, and increased coverage from the CGFMU Guarantee Scheme for the MFI book, which now covers 83% of assets.
Strategic Initiatives and Technology Focus
The bank launched new innovative offerings, including an exclusive banking program for chartered accountants and 'M Circle' for women customers. Distribution expanded significantly with 100 new physical touchpoints, including 27 new deposit branches, bringing the total to 2,726. AU Small Finance Bank is accelerating AI implementation across various functions, building an AI-native architecture, and developing digital STP journeys to enhance efficiency and customer engagement.
Leadership Changes and Governance
To strengthen its governance framework, the bank appointed three new independent directors. Mr. Uttam Tibrewal, Executive Director and Deputy CEO, will continue to lead key business verticals and drive growth. Mr. Vivek Tripathi, Chief Credit Officer, is slated to be appointed Executive Director, subject to regulatory approvals, and will continue to provide enterprise stewardship of the bank's credit architecture.
Outlook and Future Guidance
Management projects overall loan growth of 20-22% for the next year, aiming for a sustainable Return on Assets (ROA) of 1.8%. The full-year FY26 credit cost guidance remains at 100 basis points on average assets. The cost-to-income ratio is targeted to stay below 60%, ideally in the 56-57% range for the next year, driven by operational leverage and technology adoption. The bank expects deposit repricing benefits to continue for another two quarters.