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What the record says.
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.
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Guidance to track
- Management reiterated guidance for FY26 credit cost at 100 bps on average assets, supported by improving asset quality and CGFMU coverage.
- Management expects cost-to-income ratio to remain below 60%, with nine-month ratio at 57%.
- Management aims to achieve 1.8% ROA on a sustainable basis, with FY27 as a potential timeline.
- Management targets loan growth of 20-22% in FY27, around 2.25-2.5x nominal GDP.
Risks flagged
- Management acknowledged that southern markets are overcrowded with next-level competition, making ramp-up in Fincare branches slower than expected.
- MFI recovery is broad-based but remains vulnerable to external events that could derail the credit cycle, as noted by management.
- The December repo rate cut will impact ~30% of the variable-rate book, with full effect expected in Q4, potentially pressuring NIM.
- OpEx increased 14% QoQ due to higher disbursements, headcount additions, and marketing spend, which could pressure cost ratios if growth moderates.
Key quotes
- We have the potential to deliver a 1.8% kind of ROA on a very sustainable basis. Give us four, five more quarters for us to just get our initial investments done.
- The MFI recovery is a very, very broad-based recovery. It is not in the one lender's book. If you look at the MFIN data, it would reveal that it is across the industry.
- We are building a bank engineered for scale, intelligence, and long-term sustainability. Over the past eight years, we have consistently and strategically invested 8%-10% of our OPEX in our technology backbone.
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