Summary
AU Small Finance Bank - Q3 FY 2026 Earnings Call Summary Tuesday, January 20, 2026 4:00 PM
Event Participants
Executives 5 Gaurav Jain (Interim CFO), Prince Tiwari (Head of IR & FIG), Sanjay Agarwal (MD & CEO), Uttam Tibrewal (ED & Deputy CEO), Vivek Tripathi (Chief Credit Officer)
Analysts 8 Akshay Jain, Ankit Bihani, Bhavik Shah, Gaurav Toshniwal, Jayant Kharote, Jignesh Shial, Kunal Shah, Nitin Aggarwal, Param Subramanian, Piran Engineer, Pritesh Bumb
Financials & KPIs
| Metric | Reported | Commentary |
|---|---|---|
| Total Deposits | ₹1,38,000 crores | +23% YoY, +4.5% QoQ; driven by strong branch banking franchise and 30% YoY growth in CASA acquisitions. |
| Total Loan Portfolio | ₹1,30,000 crores | +19.3% YoY; secured assets grew 23% YoY while unsecured de-grew 17% YoY. |
| Net Interest Margin (NIM) | 5.7% | +25 bps QoQ; benefit from 22 bps COF decline, lower surplus liquidity, and CRR cuts. |
| GNPA Ratio | 2.30% | -11 bps QoQ; improvement led by recovery in unsecured and seasonal strengthening in secured assets. |
| Credit Cost (Annualized) | 0.78% | -41 bps QoQ; 9-month credit cost stands at 1.1% of average assets. |
| Cost of Funds (COF) | 6.61% | -22 bps QoQ; total 53 bps reduction in FY26 so far due to TD repricing and SA rate cuts. |
| Cost-to-Income Ratio | 57% (9M YTD) | Management targets remaining below 60% despite increased OPEX from branding and distribution expansion. |
| Return on Assets (ROA) | 1.6% | +26% growth in PAT; management maintains long-term sustainable target of 1.8%. |
| Capital Adequacy (CRAR) | N/A | Impacted by inclusion of interim profits offset by higher risk weights on securitization and DTA. |
Geographic & Segment Commentary
- Retail Secured Assets: This segment (Wheels, Mortgages, Gold) forms 68% of the portfolio and grew 21% YoY. Wheels business reached ₹43,700 crores (+27% YoY) aided by GST cuts, while Gold loans reached ₹3,000 crores (+52% YoY) as a key growth driver.
- Commercial Banking: Comprises 21% of the lending book at ₹27,700 crores (+25% YoY) across business banking, real estate, and NBFCs. This segment is highly self-funded, contributing 7% of the bank’s total CASA book.
- Unsecured Business: Inclusive Finance (MFI) has started to turn around with 2% QoQ growth to ₹6,600 crores. Digital Lending (Credit Cards/PL) declined 27% YoY, but new card issuances improved to 48k in Q3 vs 27k in Q2.
Company-Specific & Strategic Commentary
- Universal Banking Transition: Management identified this as a “once-in-a-lifetime” opportunity; strategy remains focused on core segments while scaling pan-India.
- AI & Technology Adoption: Investing 8-10% of OPEX in tech; accelerating “agentic AI” to handle 25% of inbound calls via bots and 60% of fraud alerts.
- Succession Planning: Uttam Tibrewal to continue as Deputy CEO post-April 2026 to focus on ground engagement; Vivek Tripathi elevated to Executive Director (subject to approval).
- Product Diversity: Launched “M Circle” for women and an exclusive banking program for Chartered Accountants in partnership with ICAI.
Guidance & Outlook
| Metric | Guidance / Outlook | Commentary |
|---|---|---|
| Loan Growth | 20% - 22% (FY27) | Expected to be 2.25x to 2.5x of nominal GDP growth; driven by Wheels and Mortgages. |
| Credit Cost | ~1.0% (FY26 Full Year) | Normalization in Credit Cards and CGFMU guarantee protection in MFI support this target. |
| Cost-to-Income | < 60% (FY26/27) | Efficiency expected from tech adoption and operating leverage despite headcount additions. |
| ROA | 1.8% (FY27) | Long-term target to be achieved through operating leverage and margin stabilization. |
| MFI Growth | 10% - 15% (FY27) | Sentiment is turning positive but management remains cautious for another quarter. |
Risks & Constraints
| Risk | Context |
|---|---|
| Interest Rate Sensitivity | ~30% of the loan book is variable-rate; the recent 25 bps repo cut will impact asset yields in Q4 FY26. |
| Unsecured Asset Quality | While MFI is stabilizing, Credit Cards remain in a “readjustment” phase for another year after past stresses. |
| Competition | Intense competition for granular deposits and surplus capital in the NBFC/Banking sector may pressure margins. |
| Operational Execution | Rapid expansion in Southern markets and new product lines like Gold Loans requires sustained productivity from new hires. |
Q&A Highlights
Margin Drivers
- Question: What drove the 25 bps NIM expansion beyond the 22 bps COF decline? (Akshay Jain)
- Answer: Benefits came from CRR cuts and lower surplus liquidity due to strong loan growth; TD repricing has ~2 quarters of tailwinds left (Gaurav Jain).
MFI Asset Quality
- Question: Is the MFI improvement driven by Gold Loan access? (Ankit Bihani)
- Answer: No, recovery is broad-based across the industry; 83% of the MFI book is now covered by CGFMU guarantee which significantly lowers net credit risk (Vivek Tripathi/Prince Tiwari).
CD Ratio Concerns
- Question: How does management view the high CD ratio of 89%? (Piran Engineer)
- Answer: Excluding structured refinance, the CD ratio is ~80%. Management focuses on self-governance and prudent liquidity rather than just regulatory targets (Sanjay Agarwal).
Operating Expenses
- Question: Why was there a sharp uptick in OPEX this quarter? (Param Subramanian)
- Answer: Driven by 20% QoQ growth in disbursements, branding campaigns with new ambassadors, and “down payment” on headcount for Southern expansion (Gaurav Jain).
Key Takeaway
AU Small Finance Bank delivered a resilient Q3 FY26, characterized by a 25 bps NIM expansion to 5.7% and a significant reduction in credit costs to 78 bps. The bank successfully navigated tight liquidity, growing deposits by 23% YoY to ₹1.38 lakh crores while maintaining a stable CASA ratio of 29%. Strategically, the bank is pivoting towards a “tech-first” universal banking platform, investing 8-10% of OPEX in AI-led architecture and expanding its distribution in Southern India. While the unsecured book (MFI and Cards) is nearing the end of its credit cycle with 83% of MFI now guaranteed, the core growth remains anchored in secured retail assets like Wheels (+27% YoY). Management remains confident in achieving a 1.8% ROA by FY27, backed by 20-22% loan growth and disciplined cost control. The primary watch point remains the impact of the variable-rate repo link on asset yields in the coming quarter.
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