AU Small Finance Bank Limited — Q4 FY26 earnings call

Call held 27 Apr 2026

Management summary

AU Small Finance Bank delivered a strong Q4 FY26 performance, marked by robust growth in deposits and loan portfolio, significant improvement in profitability with ROA reaching 1.8%, and enhanced asset quality with declining GNPA and credit costs. The bank is actively investing in technology, particularly AI, and is progressing towards a universal banking license, while acknowledging the seasonal nature of Q4 results and potential margin pressures from rising cost of funds.

Highlights

  • Profit After Tax (PAT) for Q4 grew by 25% QoQ and 65% YoY to ₹832 crores.

  • Return on Assets (ROA) improved to 1.8% for Q4 and 1.6% for the full year FY26.

  • Deposits grew strongly by 10% QoQ and 23% YoY to ₹1.52 crores.

  • Loan portfolio expanded by 8% QoQ and 21% YoY.

  • Net Interest Margin (NIM) expanded by 24 bps QoQ to 5.96%.

  • Cost of funds declined by 12 bps QoQ to 6.49% for Q4 and 32 bps YoY to 6.75% for FY26.

  • Asset quality improved significantly with slippages declining 17% QoQ to ₹659 crores.

  • GNPA ratio decreased by 27 bps QoQ to 2.03%.

  • Credit cost for Q4 was 0.6%, and for the full year, it was 96 bps of average assets.

Concerns

  • The 1.8% ROA in Q4 is seasonally strong and may not be sustainable at that level for the full year.

  • Cost of funds may have bottomed out, and future rate increases could impact margins.

  • Uncertainty regarding the full impact of new ECL guidelines on credit cost.

  • The home loan market is highly competitive, limiting aggressive growth in that segment.

Key financials

2 periods

Headline

  • Profit After Tax (FY)
    ₹2,641 Cr
    YoY +25%
  • ROA (FY)
    1.6%
  • ROE (FY)
    14.2%
  • Deposits
    ₹1.52L Cr
    YoY +23% QoQ +10%
  • Loan Portfolio Growth
    —
    YoY +21% QoQ +8%
  • NIM
    6%
  • Cost of Funds (FY)
    6.8%
    YoY -0.32%
  • GNPA Ratio
    2%
    QoQ -0.27%
  • Credit Cost (FY)
    0.96%
  • CASA Ratio
    28%

Q4

  • Profit After Tax
    ₹832 Cr
    YoY +65% QoQ +25%
  • ROA
    1.8%
  • Cost of Funds
    6.5%
    QoQ -0.12%
  • Credit Cost
    0.6%
  • LCR
    119%

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

  • Retail Secured Assets
    66% Portfolio Share21% Growth
  • Wheels Book
    ₹46,400 Cr Value27% Growth
  • Gold Loan
    ₹4,000 Cr Value100% Growth
  • Mortgages (Micro Business & Affordable Housing)
    ₹42,400 Cr Value11% Growth
  • Commercial Banking
    22% Portfolio Share₹31,000 Cr Value29% Growth12% Growth
  • MFI
    0.08 sequential_growth Growth99.7% Collection Efficiency92% CGFMU Coverage
  • Digital Unsecured (Credit Cards & Personal Loans)
    4% Growth
  • Personal Loans
    0.19 sequential_growth Growth

Capital allocation

high confidence
  • Dividend ₹1/share (final)
    The Board of Directors has recommended a dividend of 1 per share for FY26, subject to requisite approvals.
  • Liquidity Liquidity disclosed Average LCR for the quarter was stable at 119% versus 118% last quarter. Also, the bank carried 15% additional liquidity in the form of non-LCR investments.
    Our average LCR for the quarter was stable at 119% versus 118% last quarter. Also, the bank carried 15% additional liquidity in the form of non-LCR investments.

Guidance & targets

Profitability

  • ROA Profitability · full-year basis for next year · Medium confidence 1.8%
    Our goal would be to maintain this ROA or achieve this ROA on a full-year basis for next year.

    — Gaurav Jain

Credit Cost

  • Credit Cost Credit Cost · next year · Medium confidence 90 bps
    And if you ask me, we should build it around 90 bps or maybe in that range so that it allows franchise to have some kind of risk-taking capability.

    — Sanjay Agarwal

Operating Efficiency

  • Cost to Assets Ratio Operating Efficiency · next financial year · Medium confidence lower than 4%

    Previously 4.1% (FY26 ex-CGFMU) → lower than 4%

    I believe next year, this current financial year, we should be lower than 4%.

    — Sanjay Agarwal

Growth

  • Compounding Growth Rate Growth · long-term · Medium confidence 2 to 2.5 x India's nominal GDP growth rate
    We believe our franchise is capable of sustainably compounding at 2 to 2.5 x of India's nominal GDP growth rate, delivering consistent, predictable and long-term value to our shareholders.

    — Sanjay Agarwal

Regulatory

  • Universal Banking License Regulatory · near term · High confidence awaiting regulatory approvals
    Following this amendment, we filed the final license application in March '26 and await regulatory approvals.

    — Gaurav Jain

Branch Expansion

  • New Branches Branch Expansion · every year · High confidence 80 to 100
    We are opening 80 to 100 newer branches every year, investing in our brand, and expect significant benefits to accrue over time from the anticipated transition to universal banking license.

    — Gaurav Jain

Cost of Funds

  • Cost of Money Cost of Funds · long-term · Low confidence around the repo rate (currently 5.25%)
    So I think the long-term target, I would say the way we are pushing internally that the cost of money should be around the repo rate prevalent at that time. So, if you ask me, at this time the repo rate is 5.25% and my cost is around 6.75%.

    — Sanjay Agarwal

What to watch in Q1 FY27

Full-year ROA achievement

next year (FY27)
Current 1.8% (Q4 FY26, seasonal)
Target Maintain 1.8% on a full-year basis for FY27

Why it matters

Verifying if the strong Q4 ROA can be sustained throughout the next financial year, indicating structural improvements.

Our goal would be to maintain this ROA or achieve this ROA on a full-year basis for next year.

Risks & concerns

  • Geopolitical tensions and macroeconomic volatility

    medium

    Geopolitical tensions in West Asia, fuel prices, and supply chain issues elevate risk sentiment, potentially impacting inflation, consumption, and credit.

    Management acknowledged

  • Potential bottoming out of cost of funds

    medium

    With recent rate increases, the cost of funds may have bottomed out, potentially impacting future margins.

    Management acknowledged

  • Uncertainty of ECL guidelines impact

    medium

    The full impact of new ECL guidelines on credit cost is yet to be determined, though the bank's portfolio composition may mitigate some effects.

    Analyst not addressed

  • Seasonality of Q4 results

    low

    Q4 ROA (1.8%) and credit cost (0.6%) are seasonally strong and may not be sustainable at these levels for the full year.

    Management acknowledged

  • Competitive home loan market

    low

    The home loan market has become very competitive, with limited risk-reward for aggressive growth.

    Management acknowledged

Q&A highlights

7 direct
Contingency provision creation in Q4 Direct
These are normal business banking, working capital cases. We made a risk assessment of what amount is covered through our security and other things and there was a recommendation (from risk), hence we provided it. So, there is nothing specific to it.

Clarifies the nature of the ₹21 crore contingency provision, indicating it's for normal business banking cases based on internal risk assessment rather than a specific high-value issue.

Asked by Renish

Rationale for hiking interest rates on savings account and TD Direct
So in terms of liabilities, we are not focusing on one data point or one way of building it up. It is a combination of three-four variables, like how much you want to raise, the cost of money, how you want to play [position] your CASA, how you want to play your retail versus wholesale liabilities, the overall CD ratio.

Explains the bank's holistic strategy for deposit rates, balancing growth, cost of funds, CASA ratio, and retail vs. wholesale liabilities, rather than just competitive pressure.

Asked by Renish

Sustainability of 1.8% ROA and levers for improvement Direct
So Kunal, obviously, we know that Q4 is always seasonally strong. So the ROA at 1.8% reflects that strong seasonality. Our goal would be to maintain this ROA or achieve this ROA on a full-year basis for next year. And, the levers on that clearly, as we mentioned earlier as well, we are doing a lot of work on our operating efficiency, so we should see continued improvements year-on-year on the opex to assets ratio.

Management clarifies that the Q4 ROA is seasonal and sets a target to maintain this level on a full-year basis for the next year, highlighting operating efficiency and credit cost reduction as key levers.

Asked by Kunal Shah

Impact of new ECL guidelines on credit cost Partial
No, so Jayant, it's too early to comment on it. Let us understand that, right? You need to understand just one underlying factor that 90% is our retail secured asset plus I would say secured commercial banking book. So it has a very different connotation to it.

Management states it's too early to comment on ECL guidelines but emphasizes the bank's high proportion of retail secured assets and CGFMU coverage, implying a potentially lower impact compared to other banks.

Asked by Jayant Kharote

Geographical liability expansion strategy, especially in the South, and matching asset growth Direct
So I would say that it's too operational now. We have become one Bank and it's not about Southern market or Northern market. Certain branches perform, certain branches don't perform. That is why our overall growth estimation is linked to our nominal GDP growth rate, which is 2x or 2.25 or somewhere in that range. We want to be on that guidance.

Management shifts focus from regional specifics to overall pan-India franchise building, emphasizing product diversity, distribution, and technology rather than specific geographic asset-liability matching.

Asked by Jayant Kharote

Long-term target for cost of funds relative to universal banks Direct
So I think the long-term target, I would say the way we are pushing internally that the cost of money should be around the repo rate prevalent at that time. So, if you ask me, at this time the repo rate is 5.25% and my cost is around 6.75%.

Provides a clear long-term aspiration for cost of funds, aiming to align it with the repo rate, which is significantly lower than the current cost, indicating potential for future margin expansion.

Asked by Ashlesh Sonje

Uncertainty on macro and potential curtailment of risk/credit Direct
Yes, it will happen automatically, we want to remain very risk-averse and wherever we find the indicators, which as of now are not there, and we already have said in our opening remarks that whenever we find that this market, or product, or a customer base might get affected because of this challenge [or the macro challenges], we don't onboard them. So it will happen automatically because we have built our credit underwriting model around this.

Management confirms a risk-averse stance and an automated credit underwriting model that will naturally curtail credit in adverse macro conditions, providing comfort on asset quality management.

Asked by Ashlesh Sonje

Technology translation into business volumes and cost ratios as Bank transitions to Universal Bank Direct
I think now Al is really helping us lot into it. And we are not saying that Al only will help us in back-end automation or back-end processes or back-end policies, we want to take it to the front-end as well. And I'm so happy to say to all that we have launched our first Al-led LOS in Gold loans and we actually have given two-three loans on Saturday, today also, which is a 5-10 minute journey, frictionless.

Highlights the strategic importance of AI in transforming operations, improving productivity, and enabling faster, frictionless customer journeys, with a live example in gold loans.

Asked by Nitin Aggarwal

3 min read 6 chapters

Detailed narrative

Strong Financial Performance in Q4 and Full Year FY26

AU Small Finance Bank reported a robust Q4 FY26, with Profit After Tax (PAT) growing 25% QoQ and 65% YoY to ₹832 crores. For the full fiscal year, PAT increased by 25% YoY to ₹2,641 crores. This strong performance led to an improvement in Return on Assets (ROA) to 1.8% for Q4 and 1.6% for the full year, with Return on Equity (ROE) at 14.2% for FY26. Net Interest Income (NII) grew 10% QoQ, contributing to the overall profitability.

Robust Deposit and Loan Growth

The bank demonstrated strong growth in its deposit franchise, with deposits increasing by 10% QoQ and 23% YoY to reach ₹1.52 crores. CASA deposits also grew by 9% QoQ and 20% YoY, maintaining a broadly stable CASA ratio of 28%. The loan portfolio expanded by 8% QoQ and 21% YoY. Secured assets, comprising 66% of the portfolio, grew 7% QoQ and 23% YoY, with the wheels book growing 27% YoY to ₹46,400 crores and gold loans doubling YoY to ₹4,000 crores.

Improved Asset Quality and Cost Management

Asset quality saw continued improvement, with slippages declining 17% QoQ to ₹659 crores, leading to a 27 bps reduction in the GNPA ratio to 2.03%. Credit cost for Q4 stood at 0.6%, and for the full year, it was 96 bps of average assets. The bank also managed its cost of funds effectively, which declined by 12 bps QoQ to 6.49% in Q4 and 32 bps YoY to 6.75% for FY26. The cost to assets ratio (excluding CGFMU premium) improved by 19 bps to 4.1% for the full year.

Strategic Initiatives and Universal Banking Transition

AU Small Finance Bank is actively pursuing a universal banking license, having filed its final application in March '26 following an amendment to NOFHC requirements. The bank is also focused on leadership depth, with MD & CEO Sanjay Agarwal's tenure extended for three years until April 2029, and Vivek Tripathi appointed as Executive Director and Chief Credit Officer. The strategy includes expanding the branch network by 80-100 new branches annually to strengthen the liabilities franchise.

Technology and AI Integration for Operational Efficiency

A significant focus is on embedding AI into the core operating model to enhance customer experience, productivity, and scalability. The bank has implemented an Agentic AI platform, with the first AI-native loan origination system going live for gold loans, enabling a 5-10 minute frictionless journey. This platform is being expanded to other segments like mortgages and personal loans. AI is also being deployed across credit underwriting, fraud decisioning, and customer service, with a target to scale AI-led outbound campaigns to 25% of total calls over the next two quarters.

Outlook and Long-term Vision

Management aims to maintain the Q4 ROA of 1.8% on a full-year basis for the next fiscal year, targeting a credit cost of around 90 bps and a cost to assets ratio lower than 4%. The bank aspires to grow sustainably at 2 to 2.5 times India's nominal GDP growth rate. The long-term vision includes aligning the cost of money with the prevailing repo rate, currently 5.25%, as the bank matures into a universal banking entity.

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