This article first appeared on GuruFocus .
-
Deposits Growth:23% year on year, reaching INR 138,000 crore.
-
Loan Portfolio Growth:19.3% year on year, totaling INR 130,000 crore.
-
Secured Assets Growth:23% year on year.
-
Unsecured Business Growth:1% positive growth this quarter.
-
Net Interest Margin (NIM):Expanded by 25 basis points quarter on quarter to 5.7%.
-
Gross Non-Performing Assets (GNPA) Ratio:Declined by 11 basis points to 2.3%.
-
Credit Costs:Declined by 41 basis points to 78 basis points of average assets for Q3.
-
Profit After Tax (PAT):INR 668 crore for the quarter, with ROA of 1.6%.
-
Net Interest Income (NII):Increased by 9% sequentially.
-
Operating Expenses:Increased by 14% quarter on quarter.
-
Cost of Funds:Declined by 22 basis points quarter on quarter to 6.61%.
-
CASA Ratio:Remained stable at 29%.
-
New Branches:66 new liability branches added this year.
-
Wheels Business Growth:27% year on year, reaching INR 43,700 crore.
-
Gold Loan Business Growth:52% year on year, reaching INR 3,000 crore.
-
Mortgages Business Growth:13% year on year, reaching INR 41,000 crore.
-
Commercial Banking Growth:25% year on year, reaching INR 27,700 crore.
-
Inclusive Finance Portfolio Growth:2% quarter on quarter, reaching INR 6,600 crore.
-
Credit Card Issuance:Strengthened to 48,000 cards in Q3.
-
Warning! GuruFocus has detected 7 Warning Signs with NSE:AUBANK.
-
Is NSE:AUBANK fairly valued? Test your thesis with our free DCF calculator.
Release Date: January 20, 2026
For the complete transcript of the earnings call, please refer to the full earnings call transcript .
Positive Points
-
AU Small Finance Bank Ltd ( NSE:AUBANK ) reported a strong deposit growth of 23% year on year, significantly outpacing the system growth of 12.7%.
-
The bank's loan portfolio grew by 19.3% year on year, which is 1.3 times the system growth and nearly 2.5 times the nominal GDP growth.
-
Asset quality improved with slippages declining by 13% quarter on quarter and the Gross Non-Performing Assets (GNPA) ratio decreasing by 11 basis points to 2.3%.
-
Profitability expanded with a 26% quarter on quarter increase in profit after tax and a return on assets (ROA) of 1.6% for Q3.
-
The bank continues to innovate with new product offerings, such as exclusive banking programs for chartered accountants and tailored propositions for women customers.
Negative Points
-
The deposit environment remains intensely competitive with tight liquidity conditions, which could pressure future growth.
-
Unsecured businesses registered a year-on-year degrowth of 17%, although there was a slight turnaround with 1% growth in the quarter.
-
The cost-to-income ratio remains relatively high at 57% year-to-date, indicating room for improvement in operational efficiency.
-
The bank's unsecured digital lending portfolio, including credit cards and personal loans, declined by 27% year on year.
-
There is a reliance on bulk non-callable deposits, which could pose risks if liquidity conditions tighten further.
Q & A Highlights
Q: Can you explain the different moving parts affecting your margins, and provide guidance on future margins? A: Gaurav Jain, Interim CFO, explained that the margin improvement was driven by a 22 basis point reduction in cost of funds, benefits from CRR cuts, and lower surplus liquidity. Asset yields have decreased, but the balance reflects in margin growth. Future margin outlook depends on ongoing repricing of the deposit book, the impact of recent repo rate cuts, and asset yield improvements, particularly in MFI and credit card segments.
Q: How should we view the funding mix, given the reliance on non-callable bulk deposits? A: Gaurav Jain stated that the stable deposit ratio, which includes CASA, retail TD, and bulk non-callable deposits, remains stable at around 80%. The bank optimizes funding sources across multiple metrics, including deposit growth and cost of funds, amidst tight liquidity conditions.
Q: What is the outlook for unsecured loans, given the stability in MFI and credit card portfolios? A: The bank is seeing positive signs in the MFI business, with expectations for growth next year. Credit card business will take another year to stabilize. Personal loans are expected to grow, supported by STP journeys and cross-selling, though the base is currently low.
Q: How should we view the cost-income ratio, given the increase in costs this quarter? A: The bank aims to keep the cost-income ratio below 60%, with a target of 56-57% for the next year. Investments in technology and AI are expected to reduce operational costs over time.
Q: What is the loan growth outlook for the next 1-2 years, particularly for microbusiness loans? A: The bank targets overall loan growth of 20-22%, driven by retail secured assets and commercial banking. Microbusiness loans are expected to grow by 17-18% next year, supported by expansion in southern markets and new product lines.
Q: Can you provide more details on the MFI credit cost and its future trajectory? A: Vivek Tripathi, Chief Credit Officer, noted that improved collection efficiencies and increased CGFMU coverage have reduced credit costs. With 83% of the MFI book covered under the guarantee scheme, credit costs are expected to remain stable, barring any significant changes in the environment.
Q: How does the bank view the competitive landscape, given recent capital raises by peers? A: Sanjay Agarwal, MD & CEO, emphasized the bank's strong foundation and product range, which positions it well to compete. The bank aims to grow at 2.25-2.5 times the nominal GDP, leveraging its retail assets, commercial banking, and digital capabilities.
Q: What is the impact of recent repo rate cuts on margins, and how does it affect the asset yield? A: The December rate cut will impact margins over the next few months, affecting about 30% of the book. The bank expects asset yields to remain stable, supported by growth in secured segments like wheels and mortgages.
For the complete transcript of the earnings call, please refer to the full earnings call transcript .
