Q2 FY27 · NSE: AUBANK

AU Small Finance Bank

Results filed 24 October 2026 · Market cap ₹64,953 crore · PE 20.6

GrowthGuidance maintainedTranscript read

Net interest income: +31.5%; on a year ago
Pre-provision profit: +25.1%; on a year ago
Profit to shareholders: +52.9%; on a year ago

AU Small Finance Bank reported a strong Q2'FY27 with net profit rising 53% YoY to ₹858 Cr on the back of 32% NII growth and a 25% drop in provisions. Deposits and gross loan portfolio expanded 29% and 25% YoY respectively, while GNPA improved to 1.99% and credit cost dropped to 0.8%. However, margins contracted 9 bps QoQ to 5.8% due to higher investment book liquidity, and operating expenses rose 26% YoY amid ongoing distribution and technology investments.

AU Small Finance Bank Limited, Q2 FY27₹ crore, standalone

	Q2 FY27	Q1 FY27	vs previous quarter	Q2 FY26	vs a year ago
Net interest income	2,820	2,696	+4.6%	2,144	+31.5%
Other income	770	689	+11.7%	713	+8.1%
Profit before provisions	1,514	1,435	+5.4%	1,210	+25.1%
Provisions	359	371	−3.3%	481	−25.3%
Profit to shareholders	858	796	+7.8%	561	+52.9%
Gross NPA	2.0%	2.1%	−11 bps	2.4%	−42 bps

Source: AU Small Finance Bank Limited’s filing to NSE, 24 October 2026. n.m.: not meaningful, because the earlier figure was zero or negative, or the latest one is a loss.

What stood out

Net profit surged 53% YoY to ₹858 Cr driven by 32% NII growth and a 25% decline in credit provisions
Source
PAT at ₹858 cr was up 53% YoY compared to ₹561 cr in Q2'FY26; Net Provisions declined 25% YoY to ₹359 cr (Press Release, Page 2)
Strong deposit growth of 29% YoY with CASA ratio expanding sequentially by 72 bps to 29.5%
Source
Total deposits grew 29% YoY (8% QoQ) to ~₹1.70 lac cr vs ~18% banking sector; CASA ratio grew 72 bps sequentially to 29.5% (Presentation, Page 6)
Gross NPA improved below 2% to 1.99%, with slippages easing to 2.6% from 3.3% YoY
Source
GNPA ratio declined by 42 bps YoY to 1.99% and NNPA to 0.81%; Slippages improved YoY to 2.6% vs 3.3% in Q2'FY26 (Presentation, Page 6)

Guidance

Metric	Guidance	Period
Gross Loan & Deposit Growth Source "Our target is to grow in the range of 25% year-on-year... Overall, we are targeting, again, in the range of 2x to 2.5x to nominal GDP rate side" - Sanjay Agarwal (Transcript, Pages 11, 26)	Around 25% YoY (targeting 2x to 2.5x nominal GDP growth)	FY27
Credit Cost Source "We have given a guidance of close to 90 bps, so we have enough room... our six-monthly credit cost is around 73 bps or 74 bps (81 bps including CGFMU premium)" - Sanjay Agarwal (Transcript, Page 12)	Close to 90 bps for FY27 (through-the-cycle expectation of 90-100 bps)	FY27
Cost-to-Assets Ratio Source "We expect cost to assets ratio to improve YoY on a full year basis" - Gaurav Jain (Transcript, Page 5; Presentation, Page 10)	Expected to improve YoY on a full-year basis	FY27

Credit cost guidance was maintained near 90 bps, while full-year deposit and loan growth target remains anchored at 25% YoY.

Tailwinds

Sharp decline in cost of funds by 43 bps YoY and 7 bps QoQ to 6.41%
Source
Cost of Funds (CoF) declined by 43bps YoY and 7 bps QoQ to 6.41% from 6.48% in Q1'FY27 benefiting from stronger transactional current account flows (Presentation, Page 8)
Significant reduction in provisions driven by asset quality normalization in unsecured books
Source
Provisions declined by 25% to INR359 Cr, largely led by normalization in unsecured businesses (Transcript, Page 5)
Robust growth in high-yielding Wheels and Commercial portfolios
Source
Wheels book crossed the 50,000 crore milestone this quarter and grew 27% YoY and 6% QoQ to reach ~51,000 crore; Commercial Banking grew 39% YoY (Transcript, Pages 7-8)

Headwinds

Sequential moderation in Net Interest Margin (NIM) by 9 bps to 5.8%
Source
Sequentially, margin declined by 9 bps to 5.8% driven by higher share of investments to total assets and seasonality (Transcript, Page 5)
Opex inflation driven by network expansion, hiring, and brand spend
Source
Operating expenses increased by 26% YoY driven by growth in disbursement volumes and continued investments in distribution, brand and technology (Transcript, Page 5); other opex grew 35% YoY (Presentation, Page 12)
Muted other income and decline in general banking fees
Source
General Banking, Cross Sell & Deposits related fees down 4% YoY to ₹215 cr; Income from Treasury Operations down 57% YoY to ₹34 cr (Presentation, Page 13)

New businesses and products

new business · SEBI approval received during Q2

UPI Sponsorship Services under ASBA Framework

Expected benefit: Strengthen Capital Markets and Transaction Banking propositions, positioning the bank as 'Banker to an Issue' for public issuances
Risks: Regulatory compliance, technology integration, and competitive pressure from established universal banks
Timeline: Immediate rollout underway

Source

Bank also received SEBI approval for providing UPI Sponsorship Services under the ASBA framework for IPOs and Public Issues (Transcript, Page 7; Presentation, Page 7)

new product · Live across 40 branches for Gold Loans; scaling to 100 branches and other lending verticals

Agentic AI Loan Origination System (LOS) Rollout

Expected benefit: Faster turnaround times, superior customer experience, and ~50% operating cost savings on AI-driven workflows
Risks: Model drift, governance, algorithm explainability, and technical execution risk across broader portfolios
Timeline: Under expansion; 5 priority processes planned for deployment in H2'FY27

Source

Agentic AI LOS for Gold Loans is showing promise with over 2,500 loans disbursed... focusing on scaling Agentic AI journey to Wheels, Mortgages and Commercial Loan (Transcript, Page 7; Presentation, Page 23-24)

capacity expansion · Inaugurated new corporate office in BKC, Mumbai; added 183 net touchpoints in Q2

Expansion of Physical Footprint and Mumbai Corporate Office

Expected benefit: Co-locating senior leadership closer to the financial ecosystem and driving urban deposit mobilization
Risks: Elevated overhead operating costs before branch vintage maturity
Timeline: Leadership co-location over next few months; touchpoint expansion ongoing (~100 liability branches annually)

Source

Inaugurated our new corporate office in Mumbai... added ~2,400 employees... 45 new deposit branches and 100+ asset centres added in Q2 (Transcript, Page 6; Presentation, Page 7)

Things to check

Overhead and operating expenses growing rapidly at 35% and 26% YoY respectively
Source
Other Operating Expenses grew 35% YoY to ₹983 cr from ₹729 cr; total operating expenses up 26% YoY to ₹2,077 cr (Presentation, Page 12)
Disproportionate reliance on CGFMU guarantee cover to insulate MFI credit risk
Source
99% of MFI book is covered under CGFMU guarantee, with ~8.4% of total gross advances covered under government guarantee schemes (Presentation, Pages 9, 17)

How the call went

The call covered strategy, growth outlook, and balance-sheet composition well, but management clamped down on analyst questioning regarding specific sub-segment slippage metrics, CGFMU premiums, and deposit cost granularity.

Specific or vague: Management gave good color on loan book mix (70% fixed / 30% floating), portfolio LTVs (around 75% for gold loans), and structural deposit dynamics, but declined to provide exact figures for savings account costs or standalone CGFMU premium amounts.
Candour: Management was open about consciously avoiding aggressive competition in affordable housing due to cost of funds disadvantages and acknowledged that liquidity tightening would cap further cost-of-fund improvements.
The hard questions: Analysts probed persistently on the sequential increase in slippages compared to historical pre-MFI levels, the sustainability of 25%+ opex growth, and exact product cost splits; management defended cyclicality in tractor billing and rebuffed follow-ups on slippages.

What analysts pressed on

Sequential 9 bps NIM compression and potential margin risk given 70% fixed-rate book in a tightening cycle.
Elevated operating expenses and rising overhead costs (+35% YoY) vs operating leverage promises.
Underlying asset quality trends and tractor loan seasonality causing slippages.
Headwinds to fee income from upcoming regulatory changes on bancassurance.

Answers that sidestepped

IR Head Prince Tiwari declined to disclose granular data requested on savings account costs and specific CGFMU rupee figures, stating: 'Some of these are very descriptive questions. I don't think we disclose some of these data, right?' (Transcript, Page 28).
Executive Director Vivek Tripathi declined to quantify mortgage slippage metrics: 'Yeah, so mortgage, I'll not quantify, but can give you a directional answer that it's better off quarter-on-quarter' (Transcript, Page 28).

Numbers against the story

Management highlighted continuing operational leverage and efficiency gains, pointing to cost-to-assets (ex-guarantee premium) improving slightly to 3.9% from 4.0% YoY. However, absolute opex rose 26% YoY (and other operating expenses surged 35% YoY / 11% QoQ), keeping pace with top-line growth rather than displaying meaningful underlying operating leverage. Furthermore, while management emphasized stable asset quality, write-offs increased to ₹469 Cr in Q2'FY27 from ₹240 Cr in Q1'FY27 and ₹433 Cr in Q2'FY26.

Sources

Concall transcript · filed 28-Oct-2026
Press release · filed 24-Oct-2026
Investor presentation · filed 24-Oct-2026
Figures: the company’s results filing with NSE, linked under the table.

Notes written by gemini-3.8-flash from the documents above on 1 November 2026. They summarise what the company said and can contain mistakes: check the source passage before relying on a point. Not investment advice.