AU Small Finance Bank FY26 Annual Earnings Summary

Collection efficiency dropped to 98.3% and full-year credit cost for MFI is now expected at ~5% vs prior 3-4% guidance. Recovery pushed back by one quarter.

Credit cost elevated in the southern mortgage book (15% of total mortgages) due to transition issues post-Fincare merger. Management expects normalization by year-end.

Management acknowledged high competition in the mortgage segment, which could pose downside risk to the target of growing the book to 20%+.

Although absolute credit cost has peaked, credit card losses remain high and may persist through Q2 before normalizing in H2.

MFI and credit card portfolios contribute ~50% of credit costs despite being <10% of loans. Normalization may take longer than expected.

Increased competition from niche players in micro business loans (MBL) has pressured growth and asset quality, with management cautious on expansion.

The Andhra Pradesh vehicle portfolio (~₹1,000 crore) experienced elevated stress in Q1; recovery is underway but may take 6-9 months to normalize fully.

Management acknowledged that southern markets are overcrowded with next-level competition, making ramp-up in Fincare branches slower than expected.

MFI recovery is broad-based but remains vulnerable to external events that could derail the credit cycle, as noted by management.

The December repo rate cut will impact ~30% of the variable-rate book, with full effect expected in Q4, potentially pressuring NIM.

Management raised deposit rates ahead of peers, and CFO noted cost of funds may have bottomed, potentially compressing NIMs in coming quarters.

Geopolitical tensions in West Asia could impact fuel prices, inflation, and consumption, with second-order effects on credit quality.