This article first appeared on GuruFocus .
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Profit After Tax Growth:6% year-on-year for H1.
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Deposit Book Growth:21% year-on-year.
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Loan Portfolio Growth (Excluding Unsecured):22% year-on-year.
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Total Loan Portfolio Growth:17% year-on-year.
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Net Interest Margin (NIM):Increased to 5.5% from 5.4% quarter-on-quarter.
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Cost of Funds:Reduced by 25 basis points during the quarter.
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CASA Ratio:Stable at 29.4%.
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Retail Secured Assets Growth:20% year-on-year.
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Commercial Banking GLP Growth:22% year-on-year.
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Unsecured Portfolio Growth:23% year-on-year.
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Credit Cost:Declined to 481 crores in Q2 from 533 crores in Q1.
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Operating Expenses:Increased by 11% year-on-year and 7% quarter-on-quarter.
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Cost-Income Ratio:56% in H1.
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Net Interest Income:Increased by 5% sequentially.
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Profit After Tax for Q2:INR 561 crores.
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Profit After Tax for H1:INR 1,142 crores.
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Release Date: October 17, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript .
Positive Points
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AU Small Finance Bank Ltd ( NSE:AUBANK ) received in-principle approval from the Reserve Bank of India to transition to a universal bank, which is expected to enhance trust and brand acceptance.
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The bank's deposit book grew by 21% year-on-year, significantly outpacing the system growth rate.
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Loan portfolio, excluding unsecured businesses, grew by 22% year-on-year, indicating strong performance in core secured segments.
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Net interest margins improved to 5.5% from 5.4% in the previous quarter, driven by a decline in the cost of funds.
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The bank is actively participating in government credit guarantee schemes and interest subsidy programs, which are expected to lower risk exposure and borrowing costs for targeted groups.
Negative Points
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Credit growth in the banking system has slowed to 10% from 15% in FY24, indicating a challenging macroeconomic environment.
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The unsecured loan portfolio, including microfinance and credit cards, has been undergoing a reset cycle, impacting overall growth.
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Operating expenses increased by 11% year-on-year and 7% quarter-on-quarter due to growth in disbursements and investment in manpower.
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The bank's credit cost remains a concern, with a significant portion coming from microfinance and credit card segments.
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There is uncertainty regarding the impact of the transition to a universal bank on operational expenses and capital requirements.
Q & A Highlights
Q: What is the seasonality in fees during the second and fourth quarters, and are there signs of recovery in credit costs for the second half? A: Prince Tiwari, Head of Investor Relations, explained that Q1 is typically slower, but Q2 and Q4 see increased business disbursements and third-party product distribution, leading to higher fees. The bank opened 95,000 accounts in the last six months, contributing to fee income. On credit costs, the bank expects a significant reduction in the second half due to improvements in microfinance and credit card segments, aiming for a full-year credit cost of 1%.
Q: How should we think about operating expenses (OpEx) and cost-to-income ratio as the bank transitions to a universal bank? A: Gaurav Jain, Interim CFO, stated that the bank aims to maintain OpEx below 4.3% of average assets and a cost-to-income ratio below 60%. While there will be investments in distribution and headcount, the bank remains disciplined in controlling overheads. The transition to a universal bank is not expected to significantly increase OpEx.
Q: What is the strategy for loan mix, particularly in commercial banking, and how does it affect growth and margins? A: The bank's growth in commercial banking is driven by underlying economic activity, which was muted in Q1 and part of Q2. However, with GST reforms and increased consumption, demand is expected to pick up. The bank is focusing on sector specialization within commercial banking to manage risk and growth effectively.
Q: How is the asset quality in the South-based LAP segment, and what corrective actions have been taken? A: The bank identified issues in Andhra Pradesh, where they have strengthened collection and legal infrastructure, leading to improved recoveries and reduced slippages. The portfolio is stabilizing, and the bank is confident in its recovery efforts.
Q: What is the outlook for margins in the second half and next year, considering funding costs and asset mix? A: Prince Tiwari noted that margins have begun to improve due to deposit repricing and lower slippages. The impact of repo rate cuts on yields is largely complete, and the bank expects deposit pricing to continue falling, supporting margin improvement over the next few quarters.
For the complete transcript of the earnings call, please refer to the full earnings call transcript .
