AU Small Finance Bank has recently outlined its financial expectations and targets during a conference call update, providing insights into its strategic direction and growth plans.

Key Financial Targets

Credit Cost Management

AU Small Finance Bank expects to maintain its credit costs below 1% of average total assets. This target suggests the bank's confidence in its risk management practices and the quality of its loan portfolio.

Ambitious Loan Growth

The bank has set a target for loan growth, aiming to achieve 2 to 2.5 times the nominal GDP growth rate. This goal indicates the bank's expansion strategy in the lending sector, potentially outpacing the overall economic growth.

Operational Efficiency

AU Small Finance Bank aims to keep its cost-to-income ratio below 60%. This target reflects the bank's focus on operational efficiency and its efforts to manage expenses while driving revenue growth.

These projections provide a glimpse into AU Small Finance Bank's financial strategy, highlighting its focus on balanced growth, risk management, and operational efficiency. As the bank works towards these targets, it may potentially strengthen its position in the banking sector.

AU Small Finance Bank (AUSFB) has announced its financial results for the second quarter of fiscal year 2026, demonstrating resilience in the face of a challenging economic backdrop. The bank, which recently received in-principle approval from the Reserve Bank of India (RBI) to transition into a universal bank, continues to show strong growth in deposits and advances.

Key Financial Highlights

Deposit and Advances Growth

AUSFB's deposit growth outpaced the banking sector, with a 20.8% year-on-year increase to ₹132,509 crore, compared to the sector's growth of approximately 9.5%. The bank's CASA (Current Account Savings Account) ratio remained stable at 29.4%, with a notable reduction in the cost of funds by 25 basis points to 6.83% in Q2 from 7.08% in Q1.

The loan portfolio, excluding unsecured businesses, grew by 22% year-on-year, while the total loan portfolio increased by 17% to ₹122,877 crore. This growth rate is approximately 1.7 times the system credit growth.

Profitability and Asset Quality

Net Interest Margin (NIM) improved by 5 basis points sequentially to 5.5%, primarily driven by a sharp reduction in the cost of funds. However, the bank's profitability faced some pressure, with Return on Assets (RoA) and Return on Equity (RoE) for Q2 FY26 at 1.4% and 12.4% respectively.

Asset quality metrics showed a slight deterioration, with the Gross Non-Performing Asset (GNPA) ratio at 2.41% and Net NPA ratio at 0.88%. The bank maintained a provision coverage ratio of 84%, including technical write-offs.

Strategic Developments

AUSFB received in-principle approval from the RBI on August 7, 2025, for transitioning into a universal bank, marking a significant milestone in its growth trajectory. The bank has 18 months to transfer promoter holdings to a Non-Operating Financial Holding Company (NOFHC) structure.

The bank continues to expand its distribution network, adding 121 touchpoints, including 46 branches, during the quarter. As of September 30, 2025, AUSFB serves over 120 lakh customers through 2,626 touchpoints across 21 states and 4 Union Territories.

Management Commentary

Sanjay Agarwal, MD & CEO of AU Small Finance Bank, commented on the results: "Despite global uncertainties arising from trade, tariffs, and geopolitics, India's economy continues to display resilience. The RBI's accommodative policies have sustained the momentum of our consumption-led growth. At AU, we are well positioned to leverage these opportunities with our strong fundamentals, disciplined execution, and prudent risk management."

The bank remains focused on improving its earnings in the second half of FY26, anticipating growing margins and reducing credit costs. As AUSFB transitions towards becoming a universal bank, it aims to strengthen its granular deposits franchise and improve its cost of funds, setting the stage for its next phase of growth.