AU Small Finance Bank Ltd (NSE:AUBANK) Q1 2026 Earnings Call Highlights: Strong Deposit Growth ...

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6 days ago

Release Date: July 19, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
AU Small Finance Bank Ltd (NSE:AUBANK) reported a strong growth in its deposit book, which increased by 31% year-on-year, significantly outpacing the system growth rate.
The bank's loan portfolio grew by 18% year-on-year, driven by core secured segments such as retail secured assets and commercial banking assets.
The wheels segment, a key product within retail secured assets, showed robust growth with a 26% year-on-year increase in its gross loan portfolio.
The bank maintained a healthy liquidity position with an average Liquidity Coverage Ratio (LCR) of 123%, up 7% from the previous quarter.
AU Small Finance Bank Ltd (NSE:AUBANK) achieved a profit after tax of INR 581 crores, marking a 16% increase from the previous year.
Negative Points
The bank experienced elevated credit costs, particularly in its unsecured segments, leading to a revision in its full-year credit cost expectations.
There was a decline in net interest margin by 38 basis points, attributed to a reduction in asset yield and investment yield.
The unsecured microfinance book faced challenges with asset quality and book de-growth, impacting the bank's overall performance.
The bank's mortgage portfolio in the southern region showed signs of stress, with higher credit costs due to deterioration in asset quality.
The credit card and personal loans business experienced elevated credit costs, with the bank acknowledging a peak in absolute terms this quarter.
Q & A Highlights
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Q: How does AU Small Finance Bank expect its Return on Assets (ROA) to settle in FY26 and FY27, considering the pressure on net interest margin and credit costs? A: The bank has not provided specific guidance for ROA in FY26 but reiterates its target of achieving a 1.8% ROA for FY27. The bank expects FY26 to be stronger than FY25, which had an ROA of around 1.4%, despite the current challenges. (Respondent: Unidentified_3)
Q: Can you elaborate on the stress observed in the used commercial vehicle (CV) segment? Is it geographically specific or broad-based? A: The stress in the used CV segment is not geographically specific but is related to the segment itself, which constitutes about 6% of the total yield assets. The pressure began last year due to delayed CapEx and heavy rains, but corrective measures have been taken, and the book is performing well post-adjustments. (Respondent: Unidentified_5)
Q: What has structurally changed in the secured retail credit cost, which has been running higher than historical levels? A: The bank acknowledges that businesses go through cycles, and the current economic pressures have led to elevated credit costs. However, the bank remains one of the strongest franchises in terms of collection and asset quality. The expectation is for credit costs to stabilize in the range of 75-80 basis points. (Respondent: Unidentified_6)
Q: What led to the stress in the microfinance (MFI) and South-based mortgage portfolios, and how is the bank addressing it? A: The stress in the MFI segment was due to a drop in collection efficiency, which is now improving. The South-based mortgage book faced challenges due to team transitions and infrastructure issues, which are being addressed. The bank expects normalization in a couple of quarters. (Respondent: Unidentified_5)
Q: What is the outlook for loan growth in FY26, given the stress in some segments? A: The bank aims to grow 2 to 2.5 times the nominal GDP, with growth driven by vehicle financing, commercial banking, and gold loans. The bank expects stabilization and growth in the microfinance segment from Q2 onwards. (Respondent: Unidentified_2)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.