Latest news with #AUSmallFinanceBank
Mint
3 hours ago
- Business
- Mint
The mystery stock from Jaipur leading India's bank index in 2025
New Delhi: 2 May 2016 Stamford Bridge football stadium, London. As the final whistle blew on a fiery draw between Chelsea and Tottenham Hotspur, a raucous cheer erupted from an unlikely corner of the crowd. It wasn't the match result they were celebrating, but one of the most astonishing moments in modern sporting history—lowly Leicester City, which had narrowly staved off relegation in the previous season, was crowned Premier League champions for the first time in their 132-year history. Leicester City had earned a promotion to the top tier in English football just two years earlier. At the beginning of the 2015-16 season, bookmakers had given the team odds of 5,000-1 for winning the title. For context, the odds of Elvis Presley being found alive was 2000-1. In other words, Leicester's chances of being crowned the champions of English football were lower than Elvis being found alive. And yet, the unthinkable had happened. The unheralded team with a modest wage bill had trumped the Premier League powerhouses like Manchester City, Manchester United, Arsenal and Chelsea. Rank outsiders emerging on top always leaves behind a trail of heartbreak, euphoria and bewilderment. Not to mention a scramble for explanations. Something similar is underway on Dalal Street, where the unlikeliest of candidates has emerged as Nifty Bank Index's top performer this year—AU Small Finance Bank. It not only has the smallest weightage in the grouping but also the only one without a universal banking licence. As yet. But as the lender's June quarter (Q1) show suggests, while scale is not a prerequisite for strong execution, the market may well be rewarding promise more than performance at this juncture. The Edge Comparison may be the thief of joy, but in the markets at least, It is often the starting point of conviction. AU Small Finance Bank posted a decent showing in Q1FY26, with net profit climbing 16% on-year to ₹581 crore on the back of an 18% jump in net total income. But it is only when set against the backdrop of the sector's leaders that its outperformance in many critical areas stands out. Take credit growth, for example. At a time when the sector is facing strong headwinds in the form of slowing credit expansion, the Jaipur-based company posted a loan growth of 18% over the year-ago quarter. To put things in perspective, the country's largest private sector lender HDFC Bank's gross advances inched up 6.7% in Q1. While this is quite understandable, given that it has been consciously moderating loan growth to bring down its credit-deposit (CD) ratio closer to levels before its merger with HDFC, even ICICI Bank, arguably the Street's favourite private sector lender currently, reported domestic credit growth of 12%. AU Small Finance Bank's management has reiterated its target of achieving loan growth of 2 to 2.5-times the nominal GDP growth. System credit has been sputtering since the second half of FY25 amid macroeconomic headwinds and a marked slowdown in domestic consumption. While FY26 is showing incipient signs of a revival in consumption, credit demand remains muted. According to data from the Reserve Bank of India (RBI), system credit growth softened from 14-16% in the year-ago quarter to 11-13% in second half of FY25, and further to about 9-11% in Q1 this year. Similar is the case with deposits. Banks are finding it tough to mobilise deposits in an environment of low interest rates, with investors channeling their savings towards other avenues like equity markets. System deposit growth slowed to 10.6% in FY25 from 13% in the previous financial year. In this context, AU Small Finance Bank's deposit growth of 31% in Q1, compared to the year-ago period, stands out. More so, given the 16.2% deposit growth of HDFC Bank and 12.8% of ICICI Bank. That said, comparing a small finance bank with the sectoral behemoths would elicit a derisive snort from statistical puritans. After all, the small bank's deposit base of ₹1.28 trillion operates in a different mathematical universe when compared to HDFC Bank's ₹27.64 trillion and ICICI Bank's ₹16.08 trillion. But even under-the-hood metrics show an edge for AU Small Finance Bank. The firm's net interest margin (NIM)—a key measure of banks' core profitability—is higher than the industry stalwarts. NIM is a measure of the difference between the interest earned by a bank on its loans and securities and what it pays out to depositors. Similarly, its pre-provision operating profit (PPoP), which is a key financial metric representing a bank's core operating performance before accounting for provisions for potential loan losses, surged 38% on-year, compared to 11% for ICICI Bank. The small bank's earnings per share (EPS) growth— arguably the most important yardstick from a stock market perspective—stood at 15.2% in Q1, compared to 11.4% for HDFC Bank and 13.8% for ICICI Bank. Words of Caution However, this is not to suggest that the Q1 numbers were an all-round success. For instance, NIMs dropped to 5.4% from 6% in the corresponding quarter of the previous financial year, in tandem with other lenders grappling with the challenge of declining interest rates on loans and stickier rates on deposits. More worryingly, AU Small Finance Bank's asset quality has shown a marked deterioration, albeit in a seasonally weak quarter. Gross non-performing assets (GNPA) ratio rose to 2.47% in Q1 FY26 compared to 1.78% in the year-ago quarter, while net NPA ratio climbed to 0.88% from 0.63% in the same period. The micro finance segment (MFI) is also seeing stress, with GNPA ratio at 4.1%. 'The projected credit cost for MFI in FY26 has been revised upward, with the segment now expected to incur a 5% credit cost compared to the earlier guidance of 3%," Centrum Institutional Equities stated in a note. Apart from lower collection efficiency in the MFI segment, the management has also flagged concerns in the mortgage book in the southern states (mostly belonging to Fincare Small Finance Bank, which was merged into AU Small Finance Bank in April 2024), as well as some stress in its credit cards portfolio. 'On unsecured retail loans, recovery in asset quality seems to be delayed than earlier expectations, but we seem to have better visibility on 2H FY26. Management has highlighted stress in certain pockets of secured retail businesses (mortgages in southern India and small commercial vehicles); we are unsure about the eventual credit cost outcome of these issues," analysts at Kotak Institutional Equities noted. 'We are unsure if asset quality is at its best for the bank. We are also unsure if the broader operating environment is favourable enough for the bank to deliver strong loan growth," it added. While some analyst commentary is understandably cautious, the stock's chart-topping 30% rally this year so far exhibits a peculiarity of the market—it is a forward-looking mechanism, which assigns a greater weightage to what a company might become than what it is currently. And this is where AU Small Finance Bank might be punching above its weight. God of Small Things Small Finance Banks (SFBs) were introduced in India in 2014 as a distinct class of lenders aimed at deepening financial inclusion. Unlike payments banks, SFBs are permitted to both accept deposits and offer loans, with a focus on serving segments traditionally under-represented in formal banking, like small and marginal farmers, micro and small enterprises (MSMEs), and low-income households. As per rules, SFBs need to keep at least 75% of their loans below ₹25 lakh and at least 25% of their branches must be in rural areas that lack banking services. This is in contrast to universal banks, which have no such restrictions, besides ensuring that 40% of their loans are given to priority sectors like agriculture, MSME etc. Universal banks cater to a broader range of customers, including large corporates and government entities. They offer a wide range of services like investment banking, corporate banking, among others. For entities engaged in the lending business, securing an universal banking licence is seen as the pinnacle of financial evolution, marking their elevation from niche operations to a coveted seat at the big table. In August 2016, the RBI introduced the 'on tap' licensing policy for universal banks, allowing eligible entities like SFBs to apply for a banking licence at any time. The applicants have to meet a number of stringent criteria, including those related to minimum net worth, operational parameters, capital adequacy, NPA levels, board structure and others. AU Small Finance Bank, which began operations as AU Financiers in Jaipur in 1996 and became an SFB in 2017, applied for a universal banking licence on 3 September last year. The stock, which was trading in the range of around ₹600- ₹640 in August 2024, surged to ₹750 levels in September after its application was filed, before succumbing to profit booking. After a quiet few months, the counter resumed its upward trajectory April 2025 onwards. A rule of thumb in equities is that markets move first, news follows later. Is this what is transpiring in the stock currently, especially given that the positives and negatives seem to be evenly matched in its quarterly numbers? Licence to rally We believe the rally is largely driven by optimism around its application for a universal banking licence," Asutosh Mishra, head of research at Ashika Institutional Equity, told Mint. 'If approved, the licence would mark a strategic milestone—enabling the bank to expand its product offerings, diversify its balance sheet, and significantly lower its cost of funds," he added. The market, therefore, is pricing in the transformational potential of AU Small Finance Bank becoming a full-service bank. The bank declined to comment for this story. However, at its earnings call earlier this month, Sanjay Agarwal, the company's founder, managing director and chief executive officer, indicated that a decision on its licence is expected soon. 'I believe that this year, the decision should be made. I'm not sure what decision…but it's already 10 months since our application," he told analysts. He also exuded confidence about the company's margin pressure stabilising from Q3 onwards, given that around two-thirds of its portfolio is fixed rate. Stress in the MFI and credit cards segments could ease from next year, the founder added. Interestingly, another universal banking licence contender, Ujjivan SFB, which submitted its application in February 2025, too is seeing a similar rally on the bourses, with its stock surging over 35% year-to-date. Second-guessing the regulator is a dangerous game, but at an event in the national capital last week, RBI governor Sanjay Malhotra reiterated the central bank's objection to allowing corporates obtain banking licences, citing 'conflict of interest". Market watchers say this increases the chances of standalone SFBs obtaining the coveted banking licence. However, it is important to note that no licenses have been issued yet since RBI announced the 'on tap' licensing policy in August 2016. The last time universal banking permits were issued was in 2015, when IDFC and Bandhan Bank received the go ahead. 'Promising franchise' Some analysts also maintain that the investment thesis for smaller lenders goes beyond whether they are able to secure a banking licence or not. 'We believe small and mid-sized banks are well-positioned to outperform, especially in the evolving interest rate environment," Ashika Institutional Equity's Mishra said. 'These banks typically have a higher reliance on term deposits, and with RBI's recent pivot towards easing—through both rate cuts and liquidity infusion—they stand to benefit more meaningfully from lower funding costs as their deposit base gets repriced. While stock selection remains important, the macro tailwinds clearly favour nimble, deposit-sensitive lenders in this phase," he added. However, there is no denying the anticipation which has built up in counters like AU Small Finance Bank. Motilal Oswal expects the bank to maintain its growth leadership in the sector. That said, the domestic brokerage house has slashed its earnings estimate by 0.7% and 3.8% for FY26 and FY27, respectively. 'After a sharp recent outperformance, we see limited near-term catalysts for the stock. However, we believe that AU Small Finance Bank has the potential to emerge as a promising franchise over the medium term, especially after it secures the universal bank license," it stated in a note. Short-term exuberance may be enough to lift a stock, but only long-term execution cements a company's place at the table. Banking licence or not, this is what will determine its next phase of growth.
Time of India
4 days ago
- Business
- Time of India
FD rate up to 8.50%: List of banks offering above 8% to senior citizens
Highest bank FD interest rate for senior citizens Academy Empower your mind, elevate your skills Bank Name Interest Rates (p.a.) Highest slab % Tenure SMALL FINANCE BANKS AU Small Finance Bank 7.6 2 years 1 day to 3 years Equitas Small Finance Bank 8.2 888 days ESAF Small Finance Bank 8.1 444 days Jana Small Finance Bank 8.25 Above 1 year to 3 years slice Small Finance Bank 8.5 18 months 1 day to 18 months 2 days Suryoday Small Finance Bank 8.4 5 years Ujjivan Small Finance Bank 8.1 2 years Unity Small Finance Bank 8.25 1001 days Utkarsh Small Finance Bank 8.5 2 years to 3 years Are Small Finance Banks covered under DICGC? How safe are Small Finance Banks for FD investments? Current TDS rules on FD investment At a time when most banks are lowering their fixed deposit (FD) interest rates, there are still banks offering higher interest rates on FDs especially for senior citizens investors. Major commercial banks have slashed FD rates below the 8% per annum, however, several small finance banks continue to offer FD interest rates of 8% and above exclusively for senior citizens. These special rates are available for select tenures and offer a safe investment avenue with assured Wealth online has list out the names of the banks that are offering FD interest rate up to 8.50% to the senior citizens. Utkarsh Small Finance Bank is offering 8.25% interest rate on FD of 2 years (730 Days) upto 3 years (1095 Days). Jana Small Finance Bank is offering 8.25% interest rate on FD for tenure between 1year to 3 Small Finance Bank is offering up to 8.25% interest rate on FD tenure of 1001 Small Finance Bank is offering 8.50% interest rate on FD for 18 months 1 Day to 18 months 2 day tenure for senior Paisabazaar data. Rates as on July 22, 2025 Just make sure highest rate is above and lowest of 8% above at depsoitors are hesitant to invest in fixed deposits because they are not sure if the FD deposits are insured. According to current rules, deposits under small finance banks are insured up to Rs 5 lakhs just like private and public sector banks under Deposit Insurance and Credit Guarantee Corporation DICGC, a subsidiary of the to the AU Small Finance Bank website, 'Like all banks in India, the RBI governs and monitors SFBs. As a result, all regulations associated with banking, such as Statutory Liquidity Ratio Requirements and Cash Reserve Ratio Requirements also apply to them. Further, the RBI lays out guidelines or rules like Eligibility Criteria and Mandatory Promoter Contribution for SFBs.'From April 1, 2025, the TDS rules on FD investments applicable for senior citizens are revised. According to latest laws, tax on FD investments will be deducted if the interest income earned by the senior citizen exceeds Rs 1 lakh in the financial year. In case of general citizens, tax on FD interest will be deducted if the interest earned by general public exceeds Rs 50,000 in a financial year.
Business Recorder
5 days ago
- Business
- Business Recorder
India bonds drop to 11-week low as RBI commentary adds to bearish cues
MUMBAI: Indian government bonds fell on Friday, as hawkish commentary from India's central bank governor, coupled with higher U.S. Treasury yields and oil prices, curbed appetite for debt. The yield on the benchmark 10-year bond ended over 2 basis points higher at 6.3505%, the highest since May 9, compared with a previous close of 6.3276%. Bond yields move inversely to prices. Traders pared positions after the weekly debt auction, as a slew of negative cues soured sentiment. 'While the auction was subscribed fully, there is no further incentive for fresh buying as rising U.S. yields, oil prices anddeclining rupee are all negative for bonds,' said Debendra Kumar Dash, senior vice president of treasury at AU Small Finance Bank. The 10-year U.S. Treasury yield was at 4.4117% in Asian hours, up over 8 basis points from Tuesday's low of 4.33%. Meanwhile, oil prices rose 0.23% to $69.34 per barrel. The central bank governor's fireside chat at a Financial Express event also curbed expectations for rate easing, traders said, prompting those who were betting on an August cut to pare positions. India bonds end steady as lack of cues continue to dominate Malhotra said monetary policy, being forward-looking, will place greater focus on the outlook for growth and inflation, rather than their current levels, when the policy panel meets on August 6. With retail inflation falling to a six-year low and likely to hit a record low in July, calls for at least one more rate cut had ramped up. Malhotra added that the bar for further easing is higher than it would have been if the stance was accommodative, though the central bank still has the flexibility to move the rates up, down or pause. Rates India's overnight index swap rates rose due to high paying pressure as traders unwound earlier receiving positions. The one-year OIS rate ended 3 basis points higher at 5.53% and the two-year OIS rate rose nearly 5 bps to 5.51%. The liquid five-year OIS rate also rose 5 bps to 5.73%.
Yahoo
21-07-2025
- Business
- Yahoo
AU Small Finance Bank Ltd (NSE:AUBANK) Q1 2026 Earnings Call Highlights: Strong Deposit Growth ...
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 Warning! GuruFocus has detected 6 Warning Signs with NSE:AUBANK. 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.
Economic Times
21-07-2025
- Business
- Economic Times
AU Small Finance Bank shares slump 7% after Q1 margins shrink
Shares of AU Small Finance Bank fell as much as 7.3% on Monday to Rs 736.95 on the BSE after the lender reported a mixed set of earnings for the June quarter, with shrinking margins and deteriorating asset quality overshadowing a 16% rise in net profit. ADVERTISEMENT Net profit rose to Rs 581 crore for the April–June quarter, up from Rs 503 crore a year ago, driven by strong treasury gains. However, the bank's core lending performance showed strain, with net interest margin (NIM) narrowing by 38 basis points to 5.4%. 'Net interest margins have started to shrink as banks began to transmit the rate cuts,' the bank said in a stock exchange filing. Net interest income (NII), a key measure of a bank's profitability, grew 6% year-on-year to Rs 2,045 crore from Rs 1,921 quality weakened during the quarter, with the gross non-performing assets (GNPA) ratio rising to 2.47% from 1.78% a year earlier. This led to a sharp increase in provisions, which surged to Rs 533 crore from Rs 283 crore in the year-ago pressure on margins, the bank reported a robust 38% growth in pre-provision operating profit at Rs 1,312 crore compared to Rs 952 crore a year earlier. This was supported by a 59% jump in other income, which stood at Rs 811 crore. The bank booked Rs 289 crore in treasury gains during the quarter, significantly higher than Rs 40 crore in the same period last year. ADVERTISEMENT AU Bank's gross loan portfolio expanded 18% year-on-year to Rs 1.18 lakh crore, even as its unsecured segments, comprising microfinance and credit cards, saw a 23% decline. Total deposits grew 31% over the same period to Rs 1.28 lakh crore. ADVERTISEMENT Shares of AU Small Finance Bank have gained 3.9% so far in 2025. The stock is up 7.6% in the past six months, and over 1% in the last 12 months, though it has slipped 1% in the last the stock is trading below its 5-day, 10-day, 20-day, and 30-day simple moving averages, while holding above its 50-day, 100-day, 150-day, and 200-day SMAs. The Relative Strength Index (RSI) at 50.1 indicates neutral momentum. The Moving Average Convergence Divergence (MACD) is at 10.9, above the center line but below the signal line. ADVERTISEMENT Also read | RBL Bank Q1 Results: Net profit falls 46% YoY to Rs 200 crore; NII down 13% (Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times) (You can now subscribe to our ETMarkets WhatsApp channel)
