AU Small Finance Bank has achieved remarkable growth over the past nine years, with its balance sheet expanding tenfold despite navigating significant market challenges. Speaking on Tuesday (January 13), MD and CEO Sanjay Agarwal outlined the bank's journey through various economic headwinds including the COVID-19 pandemic, high interest rate environment, and NBFC sector crises.

Strategic Foundation and Partnerships

The bank's growth strategy began with a focused approach on high net-worth clients before establishing a transformative partnership with HDFC Bank. This strategic alliance has been instrumental in shaping AU Bank's approach across multiple dimensions:

Investor Raamdeo Agrawal recognized AU Small Finance Bank as one of the most professionally-run small lenders in the market. He particularly emphasized the bank's prudent decision to avoid unsecured lending during its initial years, which proved crucial for risk management and enabled steady, sustainable growth.

Technology-Driven Expansion

Sanjay Agarwal highlighted the transformative role of technology in the bank's operations. The implementation of AI-led communication and operational tools has significantly enhanced the bank's capabilities:

• Deeper market penetration in previously underserved areas
• More efficient customer service delivery
• Faster scaling compared to traditional banking models
• Enhanced operational efficiency across all business segments

These technological advancements have enabled the bank to serve customers more effectively while maintaining operational excellence and cost efficiency.

Leadership Philosophy and Succession Planning

Addressing the critical aspect of institutional continuity, Sanjay Agarwal emphasized that banks function as public platforms requiring sustainability beyond individual promoters. His leadership philosophy centers on building robust institutional frameworks:

Agarwal credited mentorship from Raamdeo Agrawal as pivotal in his leadership development, particularly in thinking strategically about long-term institution building, strengthening governance structures, and maintaining patience in building sustainable growth.

Future Growth Strategy

Looking ahead over the next two decades, Sanjay Agarwal outlined the bank's strategic priorities for continued expansion. The focus remains on building a much larger institution through disciplined approaches rather than aggressive short-term expansion. Key pillars of the future strategy include:

• Disciplined Capital Management: Maintaining prudent capital allocation and risk management practices
• Strong Team Development: Continuing investment in human capital and leadership development
• Technology Integration: Further leveraging technological innovations for operational excellence
• Longevity Focus: Prioritizing sustainable growth over rapid expansion

The bank's journey from a small finance institution to a significant player in the banking sector demonstrates the effectiveness of combining conservative risk management with strategic innovation and technology adoption.

Domestic institutional investors have demonstrated strong confidence in AU Small Finance Bank by significantly increasing their stake from 20.13% to 31.91% between September 2024 and September 2025. This substantial increase of over 11 percentage points signals growing institutional conviction in the bank's long-term growth prospects and operational performance.

Shareholding Structure and Institutional Confidence

As of September 2025, AU Small Finance Bank's shareholding structure reflects balanced institutional participation across different investor categories:

The sharp increase in DII holdings from 20.13% to 31.91% over the year demonstrates sustained confidence from domestic long-term institutional investors in the company's strategic direction and financial performance.

Strong Financial Performance and Growth Metrics

The bank has delivered impressive financial results that justify institutional confidence. Total deposits reached ₹1,38,420 crore as of December 2025, representing a robust 23.30% year-on-year growth from ₹1,12,260 crore in December 2024.

Asset Quality and Risk Management

AU Small Finance Bank has maintained a conservative and well-secured loan portfolio structure. The secured loan book accounts for approximately 92% of the gross loan portfolio, growing 5% quarter-on-quarter and 22% year-on-year. This asset-backed approach has contributed to improved asset quality metrics.

Operational performance showed improvement during Q2FY26, with the bank reporting a 12% sequential decline in slippages. Credit costs eased to 30 basis points from 34 basis points in Q1FY26, while net interest margin improved by 5 basis points, supported by a 25 basis point reduction in cost of funds.

Universal Banking Approval Catalyst

A major catalyst behind rising institutional interest is the RBI's in-principle approval for AU Small Finance Bank to transition into a universal bank. This milestone positions the bank as the first small finance bank in over a decade to receive such approval, opening opportunities for:

• Corporate lending expansion
• Liability base diversification
• Enhanced product portfolio
• Improved credibility among large institutional investors

Balance Sheet Strength and Scale

AU Small Finance Bank has achieved significant scale milestones, crossing the ₹1 lakh crore mark in loans, assets, and deposits. The CASA ratio stood at 28.90% as of December 2025, with CASA deposits of ₹39,950 crore reflecting 16.10% year-on-year growth.

The bank maintains confidence in its operational targets, aiming to keep the cost-to-income ratio below 60% and cost-to-opex ratio under approximately 4.30%. Management expects credit costs for the full year to align with guidance of around 1%.

Market Performance

The stock has delivered strong returns across multiple timeframes, with a 3-month return of 29.41%, 6-month return of 23.92%, and 1-year return of 75.02%. The bank trades at ₹999 per equity share with a market capitalization of ₹74,676.98 crore, positioning it as the best performer in Bank Nifty for 2025.