- Profit jumped 26.3% YoY to ₹667.65 cr, driven by a 15.7% rise in NII.
- NIM slipped to 5.7%—is margin compression a red flag or a temporary blip?
- Deposits surged 23.3% YoY, with CASA holding steady at ~29%.
- GNPA fell to 2.30% QoQ, showing solid asset‑quality trends.
- 100 new touchpoints added, expanding geographic footprint across 21 states.
You missed AU Small’s 26% profit jump—here’s why that matters now.
AU Small Finance Bank Profit Surge Beats Expectations
The bank reported a net profit of ₹667.65 crore for Q3 FY26, up from ₹528.44 crore a year ago. That 26.3% year‑on‑year increase is the strongest quarterly gain since the bank’s FY22‑23 earnings season. The lift stems primarily from a 15.7% rise in net interest income (NII), which climbed to ₹2,341.26 crore. NII measures the earnings a bank generates from its core lending and deposit‑taking activities, before expenses. A healthy NII boost indicates that AU Small’s loan book is growing faster than its cost of funds, a key sign of operational momentum.
Net Interest Margin Pressure and What It Means
While NII surged, the net interest margin (NIM) fell to 5.7% from 5.9% a year ago. NIM is the ratio of NII to average earning assets and reflects how efficiently a bank converts assets into profit. The modest dip signals a tightening deposit environment—banks are paying more to attract funds, eroding the spread. However, the margin remains above the sector average of 5.3% for Indian small‑finance lenders, suggesting AU Small still enjoys pricing power. Historically, the bank’s NIM has fluctuated between 5.5% and 6.0% over the past five quarters, with each dip quickly recovered as loan pricing adjusted.
Deposit Growth vs a Competitive Landscape
Total deposits ballooned 23.3% YoY to ₹1,38,415 crore, outpacing the industry’s average 18% growth. Current account deposits jumped 31% YoY, while savings deposits rose 13% YoY, keeping the CASA (Current Account Savings Account) ratio steady at ~29%. CASA is a low‑cost source of funds; a stable ratio indicates the bank isn’t forced to rely heavily on higher‑cost term deposits. In contrast, peer lenders like Ujjivan and ESAF posted CASA ratios slipping to 24% and 22% respectively, reflecting higher funding costs for those banks.
Asset‑Quality Stabilization Amid Market Volatility
Gross non‑performing assets (GNPA) fell to 2.30% from 2.41% QoQ, while net NPA held steady at 0.88%. GNPA represents the proportion of loans that are overdue for 90 days or more, while net NPA adjusts for provisions. The decline mirrors a normalization in the micro‑finance (MFI) and credit‑card segments, which had previously inflated NPA levels during the pandemic‑induced slowdown. For context, the sector’s average GNPA sits at 3.1% this quarter, meaning AU Small is materially better positioned than many of its small‑finance peers.
Branch Expansion and Competitive Positioning
AU Small added 100 net new touchpoints, including 27 liability branches, pushing total outlets to 2,726 across 21 states and 4 union territories. This aggressive footprint expansion mirrors Tata Capital’s recent push into tier‑2 cities, but AU Small’s focus remains on underserved semi‑urban markets where credit‑penetration is still low. The expansion strategy is designed to capture the “last‑mile” retail demand, a segment projected to grow at 12% CAGR through FY30, according to industry forecasts.
Investor Playbook: Bull vs. Bear Cases
Bull Case: The profit surge, robust deposit inflow, and improving asset quality suggest a sustainable growth trajectory. If NIM stabilizes above 5.6% and the bank continues to add high‑yielding loan book segments (e.g., affordable housing, auto financing), earnings could accelerate to double‑digit YoY growth. Investors may consider a long‑term allocation, targeting a 15%‑20% upside over the next 12‑18 months.
Bear Case: Margin compression remains a risk if competition for low‑cost deposits intensifies, especially with larger banks offering higher rates on savings products. Additionally, any slowdown in consumer credit demand—triggered by higher inflation or tightening monetary policy—could pressure NII growth. In this scenario, a short‑term pull‑back or a defensive positioning in the portfolio may be prudent.
In summary, AU Small Finance Bank’s Q3 results paint a picture of a lender that is outpacing peers on profit growth while maintaining solid asset quality. The key for investors will be watching how the bank manages margin pressure and whether its expansion can translate into higher‑margin loan growth without eroding the CASA base.