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Elevated credit costs from unsecured books
View Risks →AU Small Finance Bank Limited — Q2 FY26
AU Small Finance Bank reported a resilient Q2 FY26 with PAT of ₹561 crore and H1 PAT of ₹1,142 crore, up 6% YoY.
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AU Small Finance Bank reported a resilient Q2 FY26 with PAT of ₹561 crore and H1 PAT of ₹1,142 crore, up 6% YoY. Core secured loan growth was 22% YoY, while total loan growth moderated to 17% due to deliberate unsecured book contraction. NIM expanded 5bps QoQ to 5.5%, driven by a 25bps reduction in cost of funds to 6.83%. Credit costs declined to ₹481 crore from ₹533 crore QoQ, with management guiding full-year credit cost to 1% of average assets. The bank received in-principle approval for a universal banking license, expected to lower funding costs over time. Key drivers include deposit growth of 21% YoY, stabilization in MFI and credit card portfolios, and festive season demand. Risks include elevated slippages in unsecured books and competitive pressure in mortgage business.
AU स्मॉल फाइनेंस बैंक ने दूसरी तिमाही (Q2) में 561 करोड़ रुपये का मुनाफा कमाया। पहली छमाही (H1) का कुल मुनाफा 1,142 करोड़ रुपये रहा, जो पिछले साल से 6% ज्यादा है। बैंक ने सुरक्षित कर्ज (जहां गारंटी हो) 22% बढ़ाया, लेकिन असुरक्षित कर्ज (बिना गारंटी) घटाने की वजह से कुल कर्ज सिर्फ 17% बढ़ा। ब्याज दरों में फर्क (NIM) 5.5% हो गया, क्योंकि बैंक को सस्ता कर्ज मिलने लगा। कर्ज देने में होने वाला नुकसान (क्रेडिट कॉस्ट) घटकर 481 करोड़ रुपये रह गया। बैंक को यूनिवर्सल बैंकिंग लाइसेंस मिलने की मंजूरी मिली है, जिससे आगे फंडिंग सस्ती होगी। जमा 21% बढ़ी और त्योहारी सीजन में मांग बढ़ी। लेकिन असुरक्षित कर्ज में फिसलन (जहां लोग कर्ज नहीं चुका पाते) और मॉर्गेज बिजनेस में प्रतिस्पर्धा चिंता का विषय है।
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Read Transcript →Quarter Snapshot
Deposit Book
₹1,032 billion
+21% YoY
Deposit base crossed ₹1,032 billion, growing 21% YoY and 3.8% QoQ, reflecting strong branch banking franchise.
CASA Ratio
29.4%
Stable YoY
CASA ratio remained stable at 29.4%, with current account deposits growing 26% YoY.
Cost of Funds
6.83%
-25bps QoQ
Cost of funds reduced by 25bps QoQ to 6.83%, driven by targeted actions on high-cost deposits.
MFI Collection Efficiency
98.95%
+50bps QoQ
Ex-bucket collection efficiency improved to 98.95%, the highest in five quarters, with September at 99.05%.
What Changed vs Last Quarter
NEW
Loan growth target of 2x-2.5x nominal GDP
The bank targets full-year loan growth in the range of 2x to 2.5x of nominal GDP, with core secured assets growing 22% YoY.
NEW
NIM expansion expected over next couple of quarters
Assuming no further rate cuts, NIM should continue to expand as deposit book reprices and asset mix stabilizes.
NEW
Cost-to-income ratio below 60% and OpEx/assets below 4.3%
Management targets cost-to-income ratio below 60% and operating expense to average assets below 4.3% over the medium term.
UPDATED
Full-year credit cost guidance of 1% of average assets
Management expects full-year credit cost to be within 1% of average total assets, driven by declining unsecured slippages and seasonal recoveries in H2.
DROPPED
FY27 ROA target of 1.8% reiterated
Management reaffirmed achieving 1.8% ROA by FY27, despite near-term margin and credit cost pressures.
DROPPED
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).
DROPPED
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.
NEW RISK
Elevated credit costs from unsecured books
MFI and credit card portfolios contribute ~50% of credit costs despite being <10% of loans. Normalization may take longer than expected.
NEW RISK
Competitive pressure in mortgage business
Increased competition from niche players in micro business loans (MBL) has pressured growth and asset quality, with management cautious on expansion.
NEW RISK
Transition to universal bank may increase OpEx
While management downplays one-off costs, branding and marketing expenses could rise during the 18-month transition, impacting cost ratios.
NEW RISK
Asset quality in newer geographies
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.
RISK GONE
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.
RISK GONE
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.
RISK GONE
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%+.
RISK GONE
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.
🤫 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 expects full-year credit cost to be within 1% of average total assets, driven by declining unsecured slippages and seasonal recoveries i...
MFI and credit card portfolios contribute ~50% of credit costs despite being <10% of loans.
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