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record provenance
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What the record says.
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.
Colored figures show movement against the previous available record.
Guidance to track
- Management reaffirmed achieving 1.8% ROA by FY27, despite near-term margin and credit cost pressures.
- Credit cost expected to be around 1% of average total assets, up 10-15 bps from previous guidance of 85-90 bps.
- Microfinance book expected to bottom in Q1, stabilize in Q2, and grow to INR 7,000 crore by March 2026 (5% YoY growth).
- Net interest margin likely to decline further in Q2 but start recovering from Q3 onwards, assuming no further rate cuts.
Risks flagged
- 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.
- 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.
- Management acknowledged high competition in the mortgage segment, which could pose downside risk to the target of growing the book to 20%+.
- Although absolute credit cost has peaked, credit card losses remain high and may persist through Q2 before normalizing in H2.
Key quotes
- We reiterate our guidance of achieving 1.8% ROA for FY27.
- Q2 should be the bottom for NIM and we should start seeing gradual improvements in margins from Q3 onwards assuming no further rate cuts.
- Banking franchise require at least 10 years to get stable, stronger, and scalable.
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