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Margin pressure from deposit rate hikes
View Risks →AU Small Finance Bank Limited — Q4 FY26
AU Small Finance Bank delivered a strong Q4 FY26 with PAT of ₹832 crore (+65% YoY) and ROA of 1.8%, driven by margin expansion (+24bps QoQ to 5.96%), lower credit costs (0.6%), and robust loan growth (21% YoY).
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AU Small Finance Bank delivered a strong Q4 FY26 with PAT of ₹832 crore (+65% YoY) and ROA of 1.8%, driven by margin expansion (+24bps QoQ to 5.96%), lower credit costs (0.6%), and robust loan growth (21% YoY). Deposits grew 23% YoY with CASA stable at 28%. Asset quality improved with GNPA down 27bps to 2.03%. Management guided for sustainable compounding at 2x-2.5x of nominal GDP, with cost-to-assets expected below 4% in FY27 and credit costs around 90bps. Key risks include margin pressure from deposit rate hikes and potential macro headwinds from geopolitical tensions.
AU स्मॉल फाइनेंस बैंक ने चौथी तिमाही में शानदार प्रदर्शन किया। मुनाफा ₹832 करोड़ रहा, जो पिछले साल से 65% ज्यादा है। बैंक की कमाई पर रिटर्न (ROA) 1.8% रहा। इसकी वजह ब्याज दरों में बढ़ोतरी और कम लोन डिफॉल्ट है। लोन 21% और जमा 23% बढ़ी। खराब लोन (GNPA) घटकर 2.03% हो गया। बैंक का कहना है कि वह आगे भी अर्थव्यवस्था से दोगुनी रफ्तार से बढ़ेगा। अगले साल खर्च कम रखेगा और डिफॉल्ट का जोखिम 0.9% के आसपास रहेगा। लेकिन ब्याज दरें बढ़ने और दुनिया में तनाव से मुनाफे पर दबाव पड़ सकता है।
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Read Transcript →Quarter Snapshot
Deposits Growth
₹1.52 lakh crore
+23% YoY
Deposits grew 23% YoY, outpacing estimated private sector banking growth of 13%.
Loan Portfolio Growth
21% YoY
+21% YoY
Loan portfolio grew 21% YoY, with secured assets up 23% YoY.
CASA Ratio
28%
Stable
CASA ratio remained broadly stable at 28%, with CASA deposits growing 20% YoY.
Cost of Funds
6.49%
-32bps YoY
Full-year cost of funds declined 32bps YoY to 6.75%, with Q4 at 6.49%.
What Changed vs Last Quarter
NEW
Credit cost guidance of ~90bps for FY27
Management advised analysts to model credit costs around 90bps for FY27, though actual performance may be better.
NEW
Sustained ROA of 1.8% on a full-year basis
Management aims to achieve 1.8% ROA on a full-year basis in FY27, supported by operating leverage and lower credit costs.
NEW
Universal banking license application filed in March 2026
The bank filed its final universal banking license application in March 2026 and awaits regulatory approvals.
UPDATED
Cost-to-assets ratio below 4% in FY27
Management expects cost-to-assets (ex-CGFMU) to decline below 4% in FY27 from 4.1% in FY26, driven by operating efficiency and AI-led automation.
DROPPED
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.
DROPPED
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.
DROPPED
Loan growth of 20-22%
Management targets loan growth of 20-22% in FY27, around 2.25-2.5x nominal GDP.
NEW RISK
Margin pressure from deposit rate hikes
Management raised deposit rates ahead of peers, and CFO noted cost of funds may have bottomed, potentially compressing NIMs in coming quarters.
NEW RISK
Geopolitical and macro headwinds
Geopolitical tensions in West Asia could impact fuel prices, inflation, and consumption, with second-order effects on credit quality.
NEW RISK
ECL norms impact post universal bank transition
RBI's expected credit loss norms, applicable after universal bank transition, could increase provisioning requirements, though management says it's too early to quantify.
NEW RISK
Slowdown in home loan growth
Home loan book remained flat due to intense competition; management indicated they will not chase growth irrationally, which may cap overall loan growth.
RISK GONE
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.
RISK GONE
MFI event risk
MFI recovery is broad-based but remains vulnerable to external events that could derail the credit cycle, as noted by management.
RISK GONE
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.
RISK GONE
Elevated operating expenses
OpEx increased 14% QoQ due to higher disbursements, headcount additions, and marketing spend, which could pressure cost ratios if growth moderates.
🤫 Topics management stopped discussing
Mentioned in Q2 FY26, Q3 FY25, Q3 FY26
Management expects cost-to-income ratio to remain below 60%, with nine-month ratio at 57%.
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 Q3 FY26, Q4 FY25
Management aims to achieve 1.8% ROA on a sustainable basis, with FY27 as a potential timeline.
Mentioned in Q2 FY25, Q3 FY26
Management reiterated guidance for FY26 credit cost at 100 bps on average assets, supported by improving asset quality and CGFMU coverage.
Mentioned in Q1 FY26, Q2 FY26
Management expects full-year credit cost to be within 1% of average total assets, driven by declining unsecured slippages and seasonal recoveries in H2.
Fast read
Guidance and risk preview
Management expects cost-to-assets (ex-CGFMU) to decline below 4% in FY27 from 4.1% in FY26, driven by operating efficiency and AI-led automation.
Management raised deposit rates ahead of peers, and CFO noted cost of funds may have bottomed, potentially compressing NIMs in coming quarters.
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