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MFI asset quality deterioration
View Risks →AU Small Finance Bank Limited — Q1 FY26
AU Small Finance Bank reported a 16% YoY PAT growth to INR 581 crore in Q1 FY26, with ROA at 1.5%.
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AU Small Finance Bank reported a 16% YoY PAT growth to INR 581 crore in Q1 FY26, with ROA at 1.5%. Loan book grew 18% YoY (2x system) and deposits grew 31% YoY (3x system). NIM compressed 38 bps QoQ to 5.4% due to repo rate cuts and higher liquidity, but management expects Q2 to be the bottom with gradual improvement from H2. Credit cost guidance was raised by 10-15 bps to ~1% of assets, driven by elevated stress in MFI (collection efficiency 98.3%) and southern mortgages. The MFI book is expected to stabilize in Q2 and grow 5% YoY to INR 7,000 crore by year-end. Wheels (vehicle financing) grew 26% YoY with ROA >2%. Management reiterated FY27 ROA target of 1.8%. Key risk: further deterioration in MFI asset quality or delayed recovery in southern mortgages could pressure credit costs.
AU स्मॉल फाइनेंस बैंक ने पहली तिमाही (अप्रैल-जून 2025) में 16% मुनाफा बढ़ाकर 581 करोड़ रुपये कर लिया। इस दौरान उसकी कमाई पर रिटर्न (ROA) 1.5% रहा। कर्ज देने में 18% और जमा में 31% की बढ़ोतरी हुई। ब्याज दरों में कटौती और ज्यादा नकदी के कारण ब्याज मार्जिन (NIM) घटकर 5.4% हो गया, लेकिन बैंक को उम्मीद है कि अगली तिमाही से इसमें सुधार शुरू होगा। छोटे कर्ज (MFI) और दक्षिण के होम लोन में कुछ परेशानी है, जिससे कर्ज वसूली की लागत बढ़ सकती है। बैंक ने अगले साल तक 1.8% ROA का लक्ष्य रखा है।
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Read Transcript →Quarter Snapshot
Deposit Growth YoY
31%
+31% YoY
Deposit book crossed INR 1,27,000 crore, growing nearly 3x system rate.
Loan Growth YoY
18%
+18% YoY
Loan book reached INR 117,000 crore, growing nearly 2x system rate despite 23% degrowth in unsecured.
Wheels Growth YoY
26%
+26% YoY
Vehicle financing book grew 26% YoY to INR 38,000 crore, with portfolio yield north of 14%.
MFI Collection Efficiency
98.3%
-40bps QoQ
Collection efficiency dropped from 98.7% in Q4 due to seasonality and Karnataka ordinance.
What Changed vs Last Quarter
NEW
FY27 ROA target of 1.8% reiterated
Management reaffirmed achieving 1.8% ROA by FY27, despite near-term margin and credit cost pressures.
NEW
Full-year credit cost guidance raised to ~1% of assets
Credit cost expected to be around 1% of average total assets, up 10-15 bps from previous guidance of 85-90 bps.
NEW
MFI book target of INR 7,000 crore by year-end
Microfinance book expected to bottom in Q1, stabilize in Q2, and grow to INR 7,000 crore by March 2026 (5% YoY growth).
NEW
NIM expected to bottom in Q2, improve from Q3
Net interest margin likely to decline further in Q2 but start recovering from Q3 onwards, assuming no further rate cuts.
DROPPED
Credit cost of 75-85 bps on total average assets over medium term
Management expects normalized credit cost to be in the range of 75-85 bps, with FY26 likely at the higher end (around 85 bps) due to residual stress in unsecured books in H1.
DROPPED
MFI credit cost to improve to ~3.5% in FY26
MFI credit cost is expected to decline from elevated levels to around 3.5% in FY26, with normalization by H2.
DROPPED
Credit card credit cost to be 6-7% in FY26
Credit card credit cost is expected to be in the range of 6-7% for FY26, down from ~12.5% in FY25, with H1 elevated and H2 normalizing.
DROPPED
Universal banking license expected in calendar year 2025
Management expects the universal banking license to be granted within calendar year 2025, which will enable capital raising and branding initiatives.
NEW RISK
MFI asset quality deterioration
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.
NEW RISK
Southern mortgage book stress
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.
NEW RISK
Competitive intensity in mortgages may cap growth
Management acknowledged high competition in the mortgage segment, which could pose downside risk to the target of growing the book to 20%+.
NEW RISK
Credit card credit cost may remain elevated
Although absolute credit cost has peaked, credit card losses remain high and may persist through Q2 before normalizing in H2.
RISK GONE
NIM pressure from rate cuts and deposit repricing lag
With 50 bps repo rate cut, 30% variable rate book will reprice down, while deposit costs may not fall as quickly, pressuring NIMs in H1 FY26.
RISK GONE
MFI stress from Anfin guardrails and seasonal slippages
Despite improving collection efficiency, the implementation of Anfin guardrails and typical Q1 seasonality could lead to elevated slippages in MFI.
RISK GONE
Credit card turnaround may take 1-2 years
Management acknowledged that the credit card franchise will take 1-2 years to turn around, with breakeven expected only by FY27.
RISK GONE
Home loan NPA inching up post-merger
Home loan NPA has risen above 1% due to transition issues from the Fincare merger, though management expects it to normalize.
🤫 Topics management stopped discussing
Mentioned in Q2 FY25, Q4 FY25
MFI credit cost is expected to decline from elevated levels to around 3.5% in FY26, with normalization by H2.
Mentioned in Q3 FY25, Q4 FY25
Despite improving collection efficiency, the implementation of Anfin guardrails and typical Q1 seasonality could lead to elevated slippages in MFI.
Mentioned in Q2 FY25, Q3 FY25
Despite elevated credit costs, the bank expects to be within striking range of 1.6% ROA for FY25.
Fast read
Guidance and risk preview
Management reaffirmed achieving 1.8% ROA by FY27, despite near-term margin and credit cost pressures.
Collection efficiency dropped to 98.3% and full-year credit cost for MFI is now expected at ~5% vs prior 3-4% guidance.
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