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Intense competition in southern markets
View Risks →AU Small Finance Bank Limited — Q3 FY26
AU Small Finance Bank delivered a strong Q3 FY26 with PAT of INR 668 crore (excluding one-time provision of INR 20 crore, PAT was INR 682 crore, up 29% YoY).
bullish
high
Financial stats pending filing verification
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AU Small Finance Bank delivered a strong Q3 FY26 with PAT of INR 668 crore (excluding one-time provision of INR 20 crore, PAT was INR 682 crore, up 29% YoY). NIM expanded 25 bps QoQ to 5.7% driven by a 22 bps decline in cost of funds to 6.61% and CRR cut benefits. Loan portfolio grew 19.3% YoY to INR 130,000 crore, with secured assets growing 23% YoY. Asset quality improved: GNPA ratio fell 11 bps to 2.3%, annualized credit cost declined 41 bps QoQ to 78 bps. Deposits grew 23% YoY to INR 138,000 crore. Management guided for full-year credit cost of ~1% of average assets and reiterated ROA target of 1.8% over the medium term. Key risks include intense competition in southern markets and potential MFI event risk.
AU स्मॉल फाइनेंस बैंक ने तीसरी तिमाही में 668 करोड़ रुपये का मुनाफा कमाया। एक बार का 20 करोड़ रुपये का खर्च हटाकर देखें तो मुनाफा 682 करोड़ रुपये था, जो पिछले साल से 29% ज्यादा है। ब्याज कमाई का अंतर (NIM) 5.7% हो गया, क्योंकि बैंक को फंड जुटाने पर कम ब्याज देना पड़ा और CRR कटौती का फायदा मिला। कर्ज पोर्टफोलियो 19.3% बढ़कर 1,30,000 करोड़ रुपये हो गया, जिसमें सुरक्षित कर्ज 23% बढ़ा। खराब कर्ज (GNPA) घटकर 2.3% रह गया। जमा 23% बढ़कर 1,38,000 करोड़ रुपये हुई। बैंक ने पूरे साल कर्ज घाटा 1% और मुनाफा दर (ROA) 1.8% रखने का लक्ष्य बताया। दक्षिणी बाजारों में कड़ी प्रतिस्पर्धा और माइक्रोफाइनेंस से जुड़े जोखिम सावधानी के मुद्दे हैं।
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Read Transcript →Quarter Snapshot
Deposit Growth
23% YoY
+23% YoY
Deposits grew 23% year-on-year to INR 138,000 crore, 1.8x system growth.
Cost of Funds
6.61%
-22 bps QoQ
Cost of funds declined 22 bps QoQ to 6.61%, with cumulative 53 bps reduction in FY26.
Wheels Loan Growth
27% YoY
+27% YoY
Wheels business grew 27% YoY to INR 43,700 crore, driven by strong auto sales.
MFI Collection Efficiency
99.5%
+0.2pp MoM
MFI collection efficiency improved to 99.5% in December, highest in six quarters.
What Changed vs Last Quarter
NEW
ROA target of 1.8% over medium term
Management aims to achieve 1.8% ROA on a sustainable basis, with FY27 as a potential timeline.
NEW
Loan growth of 20-22%
Management targets loan growth of 20-22% in FY27, around 2.25-2.5x nominal GDP.
UPDATED
Full-year credit cost of ~1% of average assets
Management reiterated guidance for FY26 credit cost at 100 bps on average assets, supported by improving asset quality and CGFMU coverage.
UPDATED
Cost-to-income ratio below 60%
Management expects cost-to-income ratio to remain below 60%, with nine-month ratio at 57%.
DROPPED
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.
DROPPED
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 RISK
Intense competition in southern markets
Management acknowledged that southern markets are overcrowded with next-level competition, making ramp-up in Fincare branches slower than expected.
NEW RISK
MFI event risk
MFI recovery is broad-based but remains vulnerable to external events that could derail the credit cycle, as noted by management.
NEW RISK
Asset yield compression from repo rate cuts
The December repo rate cut will impact ~30% of the variable-rate book, with full effect expected in Q4, potentially pressuring NIM.
NEW RISK
Elevated operating expenses
OpEx increased 14% QoQ due to higher disbursements, headcount additions, and marketing spend, which could pressure cost ratios if growth moderates.
RISK GONE
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.
RISK GONE
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.
RISK GONE
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.
RISK GONE
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.
🤫 Topics management stopped discussing
Mentioned in Q1 FY26, Q2 FY25, Q2 FY26
MFI and credit card portfolios contribute ~50% of credit costs despite being <10% of loans. Normalization may take longer than expected.
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 reiterated guidance for FY26 credit cost at 100 bps on average assets, supported by improving asset quality and CGFMU coverage.
Management acknowledged that southern markets are overcrowded with next-level competition, making ramp-up in Fincare branches slower than expected.
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