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NIM pressure from rate cuts and deposit repricing lag
View Risks →AU Small Finance Bank Limited — Q4 FY25
AU Small Finance Bank delivered a resilient performance in FY25 despite a challenging macro environment.
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AU Small Finance Bank delivered a resilient performance in FY25 despite a challenging macro environment. Deposits grew 27% YoY and loans grew 20% YoY, with secured retail and commercial banking driving growth. PAT stood at INR 2,106 crore with ROA of 1.5%, impacted by elevated credit costs in MFI and credit cards and an accelerated provision of INR 150 crore. Management expects credit costs to normalize to 75-85 bps over the medium term, with FY26 likely at the higher end. NIMs face near-term pressure from rate cuts, but benefits should accrue in H2. The bank is awaiting a universal banking license, expected this calendar year. Key risk: sustained stress in unsecured portfolios could delay credit cost normalization.
AU स्मॉल फाइनेंस बैंक ने FY25 में मुश्किल हालातों के बावजूद अच्छा प्रदर्शन किया। जमा में 27% और कर्ज में 20% की बढ़ोतरी हुई, जिसमें सुरक्षित रिटेल और कमर्शियल बैंकिंग ने मदद की। मुनाफा 2,106 करोड़ रुपये रहा, जिसमें संपत्ति पर रिटर्न (ROA) 1.5% था। लेकिन MFI और क्रेडिट कार्ड में बढ़े कर्ज डूबने के खर्च और 150 करोड़ रुपये के अतिरिक्त प्रावधान से असर पड़ा। बैंक का मानना है कि आने वाले समय में कर्ज डूबने का खर्च सामान्य होकर 0.75-0.85% तक आ जाएगा, लेकिन FY26 में यह थोड़ा ज्यादा रह सकता है। ब्याज दरों में कटौती से निकट भविष्य में मुनाफे पर दबाव रहेगा, लेकिन दूसरी छमाही में फायदा होगा। बैंक को इस साल यूनिवर्सल बैंकिंग लाइसेंस मिलने की उम्मीद है। मुख्य जोखिम: असुरक्षित कर्ज में लगातार दिक्कत से कर्ज डूबने का खर्च सामान्य होने में देरी हो सकती है।
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Deposit Growth
27%
+27% YoY
Deposit book grew 27% YoY, significantly outpacing banking system deposit growth of 10.1%.
Loan Growth
20%
+20% YoY
Loan book grew 20% YoY, nearly double the system loan growth of 10.8%, despite 18% degrowth in unsecured book.
Cost-Income Ratio
57%
-700bps YoY
Cost-income ratio improved from 64% in FY24 to 57% in FY25, driven by tight cost control and lower credit card issuance.
MFI Collection Efficiency
99.2%
+0.5pp QoQ
MFI collection efficiency improved to 99.2% in March 2025, signaling nearing end of the corrective cycle.
What Changed vs Last Quarter
NEW
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.
NEW
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.
NEW
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.
NEW
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.
DROPPED
FY25 loan growth of ~20%
Total loan portfolio expected to grow around 20% for FY25, with secured assets growing 23%-24% and continued degrowth in MFI and credit cards.
DROPPED
FY25 cost-to-income ratio of 57%-58%
Full-year cost-to-income ratio expected to be 57%-58%, with Q4 seasonally higher expenses.
DROPPED
FY25 ROA guidance of 1.6%
Despite elevated credit costs, the bank expects to be within striking range of 1.6% ROA for FY25.
DROPPED
Cost of funds guided to 7.10%-7.15% for FY25
Even after recent rate hikes on savings and FD, cost of funds expected at lower end of guided range.
NEW RISK
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.
NEW RISK
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.
NEW RISK
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.
NEW RISK
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.
RISK GONE
Prolonged MFI stress
MFI credit cost of 5.4% annualized YTD and elevated SMA pool of 4.4% may persist for 2-3 quarters, impacting overall profitability.
RISK GONE
Credit card portfolio deterioration
Credit card book declined 9% QoQ with credit cost of 9.2% YTD; corrective actions may take 1-2 quarters to show results.
RISK GONE
Liquidity and cost of funds pressure
Tight banking system liquidity and persistent inflation may keep cost of funds elevated, impacting NIMs.
RISK GONE
Economic slowdown impact on secured assets
Analyst raised concern about sequential asset quality changes in secured book; management confident but GDP slowdown could affect informal segments.
🤫 Topics management stopped discussing
Mentioned in Q2 FY24, Q2 FY25, Q3 FY25
Total loan portfolio expected to grow around 20% for FY25, with secured assets growing 23%-24% and continued degrowth in MFI and credit cards.
Mentioned in Q1 FY24, Q2 FY25
Credit cost in unsecured book was ~8.5% in H1 vs guided 6.5%; management expects elevated levels in H2 as well.
Mentioned in Q1 FY24, Q2 FY24
Full-year cost-to-income ratio expected to land similar to last financial year, despite investments.
Mentioned in Q2 FY25, Q3 FY25
Full-year cost-to-income ratio expected to be 57%-58%, with Q4 seasonally higher expenses.
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 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 stres...
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.
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