Target: ₹900
CMP: ₹753.25
AU Small Finance Bank’s overall credit costs tapered q-o-q to stand at 1.94 per cent (vs 2.42 per cent q-o-q); however, the credit costs in the unsecured portfolios continue to remain elevated. Additionally, apart from the lower collection efficiency (CE) in the MFI book, owing to the more stringent MFIN guardrails, the management has flagged concerns in the mortgage book in the southern states (eFincare book, stress likely owing to the transition).
The bank has taken appropriate steps to strengthen the collections and expects a pull-back in H2FY26.
The bank is marching towards achieving its FY27E RoA target of 1.8 per cent, with tight control on costs and focused efforts on improving asset quality to drive meaningful improvement in credit costs. While another quarter of pain on NIMs will continue, we expect some support of margins from H2FY26 and beyond, driven by a 70 per cent fixed rate book, downward repricing of CoF with rate action reflecting and growth resumption in the higher-yielding unsecured products.
Supported by healthy business growth, margin improvement slated for FY27, controlled opex growth and gradually moderating credit costs, AUSFB is expected to deliver RoA/RoE of 1.6-1.8/15-18 per cent over FY26-28.
Published on July 21, 2025
