AUBANK - AU Small Finance

📊 NSE: AUBANK 🏢 Banks - Private Sector 📅 Last Updated: 12/13/2025 18:42

💰 Financial Performance

Revenue Growth by Segment

Retail Assets grew 21% YoY to INR 76,616 Cr in FY25, with Wheels growing 27% to INR 36,623 Cr and Mortgage-Backed Loans growing 16% to INR 38,097 Cr. Commercial Banking assets grew 22% YoY, now representing 21% of the total loan portfolio. Unsecured segments (MFI and Credit Cards) degrew by 23% YoY as the bank calibrated its risk exposure.

Geographic Revenue Split

The bank is expanding to a pan-India distribution model, with a strategic focus on strengthening its presence in South India following the Fincare merger. Specific regional percentage splits are not disclosed in available documents.

Profitability Margins

Net Interest Margin (NIM) improved to 5.5% in Q2 FY26 from 5.4% in Q1 FY26, driven by a decline in cost of funds. However, Return on Total Assets (ROTA) moderated to 1.41% in H1 FY26 compared to 1.54% in FY24 due to elevated credit costs and interest income reversals in the unsecured book.

EBITDA Margin

Pre-Provision Operating Profit (PPoP) grew 86% YoY to INR 4,581 Cr in FY25. For H1 FY26, PPoP growth stood at 21% YoY, supported by a 33% increase in other income and disciplined operational expense growth of 8%.

Capital Expenditure

The bank is investing in manpower and distribution expansion to achieve pan-India reach. While specific total INR Cr for future Capex is not disclosed, the bank increased its ESOP awards by 75% YoY for talent management and continues to invest in technology for its universal banking transition.

Credit Rating & Borrowing

CareEdge Ratings maintains a positive outlook. The bank raised INR 770 Cr through Tier-II bonds in FY25. Capital Adequacy Ratio (CRAR) stood at 18.78% as of September 30, 2025, well above the 15% regulatory requirement. Cost of funds saw a sharp decline in Q2 FY26, aiding margin expansion.

⚙️ Operational Drivers

Raw Materials

Not applicable as AUBANK is a financial services provider; however, its primary 'input' is Deposits, which grew 21% YoY to INR 1,32,509 Cr as of September 2025.

Import Sources

Not applicable for banking operations.

Key Suppliers

Not applicable for banking operations.

Capacity Expansion

The bank is transitioning to a Universal Bank following RBI's in-principle approval on August 7, 2025, with an 18-month transition timeline. This will remove the INR 25 lakh ticket size gap for commercial banking and allow for higher exposure limits.

Raw Material Costs

Interest expended (cost of deposits/borrowings) rose 24% YoY to INR 4,701 Cr in H1 FY26. The bank targets a cost-to-income ratio below 60% and has successfully reduced opex-to-total assets to 4% in H1 FY26 from 4.6% in H1 FY25.

Manufacturing Efficiency

Not applicable; however, operational efficiency is reflected in the 8% YoY growth in operating expenses despite a 20% QoQ increase in disbursements.

Logistics & Distribution

Distribution is being expanded pan-India; the bank is leveraging its 'AU 0101' digital app for 100% digital sourcing of insurance and other third-party products.

📈 Strategic Growth

Expected Growth Rate

20-25%

Growth Strategy

Growth will be achieved through the transition to a Universal Banking license, which will lower the cost of funds and allow for higher exposure limits. The bank is also scaling its Gold Loan business (currently INR 2,300 Cr) and cross-selling forex services via its AD-1 business and the AU 0101 digital platform.

Products & Services

Wheels loans, Mortgage-Backed Loans (MBL), Home Loans, Business Banking, Agri Banking, Gold Loans, Credit Cards, Personal Loans, Microfinance (MFI), and Insurance (Life, Health, Motor).

Brand Portfolio

AU Small Finance Bank, AU 0101 App, AU BIMA, AU ivy, AU Eternity.

New Products/Services

The bank launched AD-1 business for foreign exchange services and is scaling its 'AU BIMA' digital insurance platform, which saw 37% YoY growth in insurance business to INR 1,161 Cr in FY25.

Market Expansion

Targeting pan-India distribution with a specific focus on South India following the Fincare merger and upgrading branches to support universal banking services.

Market Share & Ranking

The bank's deposit growth of 21% is nearly 2x the industry system growth rate, and loan growth of 17% is 1.7x the system credit growth.

Strategic Alliances

The bank has received approval to increase the foreign investment limit from 49% to 74% as of December 9, 2025, to attract global capital.

🌍 External Factors

Industry Trends

The Indian banking sector is seeing a narrowing gap between credit and deposit growth. AUBANK is positioning itself for the 'Universal Banking' shift to access broader deposit avenues and relaxed regulatory constraints.

Competitive Landscape

Faces intense competition for deposits from both Government-owned banks and other private universal banks.

Competitive Moat

Moat is built on a 30-year legacy in retail secured assets (Wheels/MSME) and a strong digital-first distribution (AU 0101). The transition to a Universal Bank will further strengthen this by lowering the cost of funds.

Macro Economic Sensitivity

Highly sensitive to interest rate cycles; RBI rate cuts of 100 bps between February and June 2025 are expected to continue aiding NIM expansion as the deposit book reprices.

Consumer Behavior

Increasing demand for digital-first banking and insurance, addressed by the AU 0101 app which facilitates seamless policy sourcing and forex services.

Geopolitical Risks

Not disclosed as a primary risk, though macroeconomic stability is cited as a factor for rural growth.

⚖️ Regulatory & Governance

Industry Regulations

The bank must comply with RBI's 15% CRAR and 7.5% Tier-I CAR requirements. It is currently undergoing an 18-month transition to comply with Universal Banking norms, including the transfer of promoter shares to a Non-Operative Financial Holding Company (NOFHC).

Environmental Compliance

The bank has a 100% green loan portfolio deployment toward sustainable sectors like solar power and Electric Vehicles (EVs).

Taxation Policy Impact

Tax expenses for FY25 were INR 682 Cr, representing an effective tax rate of approximately 24.5% on Profit Before Tax of INR 2,788 Cr.

Legal Contingencies

The bank carried INR 17 Cr of contingency provisions and INR 41 Cr of floating provisions as of March 2025. Exceptional items of INR 57 Cr were recorded for merger-related stamp duty and transaction expenses.