AU small Finance Bank | FII's & DII's Favourite

AU small Finance Bank | FII's & DII's Favourite


AU SFB is among India’s leading small-finance banks, offering retail, commercial loans, deposits, savings accounts, and other banking services to a wide customer base across many states.

As of June 2025, the bank reported a gross loan portfolio (GLP) of ~₹1,17,624 crore (up ~18% YoY) and total business (deposits + advances) at ~₹2,39,318 crore — showing strong growth momentum.

The CASA (Current + Savings Account) deposits stood at ~₹37,241 crore, though CASA ratio dipped to ~29.2% in Q1 FY2026.



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📈 Recent Financial Performance & Key Metrics

In FY2025, AU SFB delivered a net profit of ~₹2,182.73 crore — a significant jump (~42% increase vs previous year).

For Q4 FY25 (quarter ended March 2025), net profit was ~₹504 crore — up ~36% YoY. Total income surged ~49% YoY. NII jumped 57% to ~₹2,094 crore and Net Interest Margin (NIM) improved to ~5.8%. Pre-provision operating profit (PPOP) nearly doubled year-on-year.

Loan book growth remains strong: gross loan portfolio rose ~18% YoY by Q1 FY26.

Non-interest income (fees + treasury etc.) contributed meaningfully — helping diversify income streams beyond interest.



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🏦 Business Strengths & Strategic Drivers

Strong growth trajectory: Consistent growth in advances (loans), deposits and overall business — indicating rising customer acquisition and credit demand.

Healthy diversification: Mix of retail + commercial loans, balanced deposit base; not overly dependent on risky/unsecured microfinance — limiting risk exposure.

Improving profitability metrics: Rising NII, good NIM, improving PPoP — reflect operational efficiency and sound interest/spread management.

Growing non-interest income: Helps cushion against interest-rate fluctuations; adds stability.

Regulatory milestone — transition to Universal Bank: Recently, AU SFB received in-principle approval from Reserve Bank of India (RBI) to become a universal bank — a big structural shift that opens up bigger loan growth, more services, and institutional-level opportunities.



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⚠️ Risks / Challenges to Watch

CASA ratio declining: Lower CASA ratio (savings/current deposits proportion) — implies higher reliance on term deposits or wholesale funding which could raise cost of funds and impact margin.

Asset-quality and provisioning pressure: In Q1 FY26, gross NPAs rose (as per reported), and provisions increased — need consistent credit discipline and recovery to avoid deterioration.

Margin squeeze risk in a rising interest-rate environment: If cost of deposits rises or yield on new loans softens, NIM could be under pressure.

Competition & scaling challenges: As AU transitions to a universal bank and scales up, execution, risk-management and compliance will matter more — growth must be balanced with stability.



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🎯 Why AU Small Finance Bank Could Feature in “Udta Arrow” Picks

High growth + upside potential: Given its track record of growth in loans, deposits and profits — AU looks like a dynamic mid/long-term investment story.

Structural re-rating possibility: Universal-bank licence — if executed well — could significantly expand its business scope and market perception.

Balanced risk-reward profile: Diversified loan book, rising non-interest income, improving profitability and prudent management reduce risk, while growth offers return potential.

Appeal for both growth- and yield-oriented investors: Rising profits, improving balance sheet and business expansion — makes AU SFB attractive for long-term equity investors.


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