AU Small Finance Bank Limited — Q3 FY26 earnings call

Call held 20 Jan 2026

Management summary

AU Small Finance Bank delivered strong Q3 FY26 results, marked by robust deposit and loan growth, significant margin expansion, and improved asset quality. The bank's PAT grew 26% QoQ to ₹668 crores, with ROA reaching 1.6%. Strategic initiatives in product, distribution, and technology, alongside leadership changes, are positioning the bank for sustainable future growth, despite ongoing challenges in unsecured segments and a competitive deposit landscape.

Highlights

  • Deposits crossed ₹1,38,000 crores, growing 23% YoY and 4.5% QoQ.

  • Loan portfolio grew by 19.3% YoY to ₹1,30,000 crores, with secured businesses growing 23% YoY.

  • Margins expanded by 25 basis points QoQ to 5.7%, driven by a 22 bps decline in cost of funds.

  • Profit after tax (PAT) grew 26% QoQ to ₹668 crores, with ROA expanding to 1.6% for Q3.

  • Asset quality improved, with slippages declining 13% QoQ and GNPA ratio declining 11 bps to 2.30%.

  • New CASA account acquisitions grew by 30% YoY, crossing 1 lakh monthly acquisitions in December.

Concerns

  • Unsecured businesses registered a degrowth of 17% YoY, though showing 1% QoQ growth.

  • Digital banking still continues to be loss-making and needs another year to stabilize.

  • The deposit environment remains intensely competitive with tight liquidity conditions.

Key financials

2 periods

Headline

  • Deposits
    ₹1.38L Cr
    YoY +23% QoQ +4.5%
  • Loan Portfolio
    ₹1.30L Cr
    YoY +19.3%
  • Net Interest Margin (NIM)
    5.7%
    QoQ +3.6%
  • PAT
    ₹668 Cr
    QoQ +26%
  • ROA
    1.6%
  • GNPA Ratio
    2.3%
    QoQ -0.48%
  • Credit Costs (Annualized)
    78%
    QoQ -34.5%
  • CASA Ratio
    29%
  • Cost of Funds
    6.6%
    QoQ -3.2%

YTD

  • Cost-to-Income Ratio
    57%

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

  • Secured Businesses
    23% Growth6% Growth
  • Unsecured Businesses
    -17% Growth1% Growth
  • Retail Secured Assets
    68% Share of Portfolio21% Growth
  • Wheels Business
    ₹43,700 Cr Book Size27% Growth
  • Gold Loan Business
    ₹3,000 Cr Book Size52% Growth
  • Mortgages Business
    ₹41,000 Cr Book Size13% Growth
  • Commercial Banking
    21% Share of Lending Business₹27,700 Cr Book Size25% Growth
  • Inclusive Finance (MFI)
    ₹6,600 Cr Book Size2% Growth
  • Digital Unsecured (Credit Cards & Personal Loans)
    -27% Growth-4% Growth

Capital allocation

high confidence
  • Liquidity Liquidity disclosed The bank's CD ratio is around 89%, with a stable deposit ratio of 80%. The foreign investment limit in the bank was increased from 49% to 74% by the Ministry of Finance.
    Our CD ratio is already 89% on. (Akshay Jain, page 8); one of the ratios that we track is our stable deposit ratio, which is, a sum of your CASA and your retail TD and your bulk non-callable. And if you look at this as a ratio of our total deposits, that has largely remained stable around 80% (Gaurav Jain, page 9); During the quarter, the Bank received approval from the Ministry of Finance, Government of India for an increase in the foreign investment limit in the Bank from 49% to a maximum permissible limit of 74%. (page 5)

Guidance & targets

Credit Growth

  • Overall Loan Growth Credit Growth · next year · High confidence 20-22%
    I think anything around 20%, 22% growth overall, we are targeting, right? And that should continue for next year too, because scale will be there, all those things.

    — Sanjay Agarwal

  • Mortgage Business Loans (MBL) Growth Credit Growth · next year and longer run · Medium confidence 17-18% next year, maybe 20% longer run
    we will be growing maybe this year around 15%-16%, idea is to be really in the range of 17%-18% next year and it will be supported by our southern branches... in a longer run, it may be around 20%.

    — Sanjay Agarwal

  • Wheels Business Growth Credit Growth · future · High confidence 25%
    we do believe that 25% growth in wheels is something that we should be able to do.

    — Prince Tiwari

  • Mortgages Business Growth Credit Growth · next 2-3 years · Medium confidence 17-18%
    the current growth rate of 13%-15%, we can scale it up to at least 17%-18% over the next 2-3 years.

    — Prince Tiwari

Profitability

  • Cost-to-Income Ratio Profitability · next year · High confidence below 60%, ideally 56-57%
    I think we want to be around the original guidance that it should be below 60%, Nitin. And if you see our nine-month data is around 57%. And we should not overly read our Quarter 3 data... ideally, we should be in the range of 56%-57%, next year too.

    — Sanjay Agarwal

  • ROA Profitability · sustainable basis · Medium confidence 1.8%
    On the overall ROA, I think we have been pretty clear for quite some time that as a Bank, we do believe that we have the potential to deliver a 1.8% kind of ROA on a very sustainable basis.

    — Prince Tiwari

Efficiency

  • OPEX by Average Assets Efficiency · this year · High confidence lower than 4.3%
    We continue to target disciplined control over operating expenses with OPEX by average assets falling to 4.1% year-to-date as compared to 4.4% in comparable period last year... this year, we expect to do better.

    — Gaurav Jain

Asset Quality

  • Full Year Credit Cost Asset Quality · FY26 · High confidence 100 bps on average assets
    Yes. So, the full year credit cost guidance that we had given out earlier was 100 basis points on average assets, on balance sheet assets.

    — Gaurav Jain

  • MFI Credit Cost Asset Quality · coming quarters · High confidence stable zone
    my slippages as well as credit cost is near normalization level and which we would continue to expect to remain in that stable zone for coming quarters as well.

    — Vivek Tripathi

  • CGFMU Coverage for MFI Book Asset Quality · by March · High confidence 90-95%
    by the end of March, hopefully, we will have almost 90%-95% of the book covered under guarantee, right?

    — Prince Tiwari

Asset Mix

  • MFI Book Share of Overall Asset Asset Mix · future · High confidence not above 10%
    but overall, we have already said that it won't be above 10% of our overall asset and we want to be in that direction.

    — Sanjay Agarwal

Product Strategy

  • Credit Card Business Stabilization Product Strategy · next year · High confidence stabilize for one more year
    Credit card, I think we want to take one more year to really stabilize it to the core, because we don't want to make mistake again.

    — Sanjay Agarwal

Funding

  • Deposit Repricing Completion Funding · next 2 quarters · High confidence completion
    we think there are still two more quarters to go for repricing of our term deposit book.

    — Gaurav Jain

What to watch in Q4 FY26

Deposit Repricing Completion

next 2 quarters
Current Ongoing, 2 more quarters expected
Target Completion of repricing

Why it matters

Completion of deposit repricing will further optimize the cost of funds and positively impact Net Interest Margin (NIM).

we think there are still two more quarters to go for repricing of our term deposit book.

Risks & concerns

  • Intensely competitive deposit environment

    medium

    The deposit environment remains intensely competitive with tight liquidity conditions, requiring robust acquisition models and distribution expansion.

    Management acknowledged

  • Overcrowded southern markets and competition

    medium

    Southern markets are overcrowded with high competition, making it challenging to ramp up disbursals quickly, though the bank is building its presence.

    Management acknowledged

  • Digital banking being loss-making

    medium

    Digital banking still continues to be loss-making and is expected to take about one more year to stabilize and break even.

    Management acknowledged

  • Global uncertainties

    low

    Despite global uncertainties, India's stronger footing with normal monsoon, accommodative regulatory environment, and fiscal discipline augurs well for credit demand.

    Management acknowledged

Q&A highlights

6 direct, 1 evasive
Margins outlook and drivers Direct
The first is the improvement in cost of funds, which we have mentioned in our presentation. The second is the benefit from CRR cut. And the third is your lower surplus liquidity during the quarter due to strong loan growth... we think there are still two more quarters to go for repricing of our term deposit book.

Clarifies the key factors contributing to margin expansion this quarter and provides a timeline for continued benefits from deposit repricing.

Asked by Akshay Jain

Credit costs for next year and MFI/credit card improvement Direct
On the credit cost, for secured retail assets, seasonally, we always have this improvement in H2... On unsecured piece, which is credit card and MFI... it is now near normalization level... For microfinance... collection efficiencies continue to improve... my SMA pool has reduced significantly... CGFMU... is improving month-on-month... For FY'26, our credit cost should be in the range of 1%.

Provides detailed reasons for the improved credit costs, segment-wise outlook, and reiterates the full-year credit cost guidance, indicating confidence in asset quality trends.

Asked by Akshay Jain

Unsecured loans mix and future growth Partial
we are seeing green shoots in MFI business... you will see some sort of growth in MFI business for next year... Credit card, I think we want to take one more year to really stabilize it to the core... personal loan, of course, we are banking big on the whole STP journeys...

Outlines the bank's strategy and expectations for its unsecured portfolio, highlighting MFI recovery, credit card stabilization, and personal loan growth drivers.

Asked by Nitin Aggarwal

Cost-income ratio outlook Direct
I think we want to be around the original guidance that it should be below 60%, Nitin. And if you see our nine-month data is around 57%... ideally, we should be in the range of 56%-57%, next year too.

Reaffirms the bank's commitment to maintaining efficiency ratios within guided levels, emphasizing the role of technology in cost reduction.

Asked by Nitin Aggarwal

Loan growth outlook for next 1-2 years Direct
we want to be around 2.25 to 2.5 times to the nominal GDP. This year, we are expecting around maybe 8% or 8.5% nominal GDP, right? So, I think anything around 20%, 22% growth overall, we are targeting, right? And that should continue for next year too...

Provides specific quantitative guidance for overall loan growth, linking it to nominal GDP growth, and indicates confidence in sustained growth.

Asked by Jayant Kharote

OPEX movement and drivers Direct
One is the 20% quarter-on-quarter increase in disbursement, business volumes, credit card issuances... The second component is your headcount and touch points, wherein we have been very clear over the past few quarters that we are growing our distribution... The third... was some typical promotion expenses...

Explains the detailed reasons behind the increase in operating expenses, including growth-related investments in distribution and headcount, which are crucial for future expansion.

Asked by Jayant Kharote

MFI asset quality and gold loan overlap Direct
Ankit, the MFI recovery is a very broad based recovery. And it is not in the one lender's book... The overlap between the gold loan and MFI book would be very minimal. And it is an independent asset class...

Clarifies that MFI asset quality improvement is systemic and not driven by cross-leveraging with gold loans, addressing a potential concern about underlying asset quality.

Asked by Ankit Bihani

CD ratio and RBI's focus Evasive
I don't want to comment on that. Again, I am saying you, I don't want to comment on that. I want to say that it is a self-governance than a regulator-led governance because we believe at a Bank that it is about us to really build a Bank rather than looking towards a regulator to say us good or bad about our ratios because we run a Bank, right?

Management avoids directly answering whether RBI's approach to CD ratio has become more benign, instead emphasizing the bank's internal prudence and self-governance, which could be interpreted as a deflection.

Asked by Piran Engineer

3 min read 7 chapters

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.

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