AU Small Finance Bank Announces Q2’FY26/H1’FY26 Financial Results
The Board of Directors of AU Small Finance Bank Limited at its meeting held today, approved the financial results for the quarter and half year ended September 30, 2025.
Executive Summary
The banking sector continues to navigate a complex macroeconomic environment marked by global headwinds from trade and tariff realignments. Domestically, the policy environment is becoming more constructive and accommodative with recent announcements on capital market lending reforms, proposed risk weight (RWA) reductions on MSME and housing and draft ECL implementation plan in a staggered manner. These announcements supplement the earlier announced cuts in policy Repo rates and CRR by RBI and Income tax and GST rate cuts by the Government.
On the operating environment, the transmission of earlier announced repo rate cuts is leading to compression in lending yields. Additionally, Q2 also saw postponement of certain consumer spendings post the announcement of GST rate cuts in mid-august.
Amidst this backdrop, AU Small Finance Bank (AU SFB) delivered a consistent performance across business parameters with key highlights bei
* Growth in Deposits was 21% YoY whereasLoan assets (ex-unsecured) grew by 22% YoY
* Adjusting for 23% de-growth in unsecured loans, overall loan growth was at 17% YoY
* Margins started expanding from Q2 with sequential Net Interest Margins (NIM) growing by 5bps QoQ to 5.5% vs. 5.4% in Q1’FY26.
* NIM expansionwas primarily led by a sharp reduction of 25 bps in cost of funds in Q2 vs. Q1
* Slippages were down by 12% QoQ. The decline in slippages was led by lower fresh NPA formation in credit cards, mortgages and commercial banking
* Consequently, Credit cost or provisioning against stressed assets reduced by 10% QoQ to Rs.481 Cr in Q2 vs Rs.533 Cr in Q1
* PAT dropped sequentially by just 3% to Rs.561 Cr vs. Rs.581 Cr in Q1’FY26 despite a substantial drop of more than Rs.221 Cr in treasury income during Q2 as compared to Q1
* Annualized Return on Asset (ROA) and Return on Equity (ROE) stood at 1.4% and 12.4% respectively
We expect the broader economic environment to improve in the second half of the year supported by revival in consumer demand led by GST cuts, above average monsoons supporting rural revival, and Government’s continued thrust on capex.
Performance at a glance (Q2’FY26):
Profitability
* NII grew by 9% YoY to Rs.2,144 Cr from Rs.1,974 Cr in Q2’FY25
* NIM, calculated on daily avg. of interest earning assets incl off book, improved by ~5 bps to 5.5% (vs. 5.4% in Q1) led by
* Higher than expected improvement in CoF by 25 bps QoQ to 6.83% (vs. 7.08% in Q1’FY26)
* Reversal of negative impact from excess liquidity and MF investments in Q1
* 19 bps decline in loan yields (majorly due to repo book repricing and change in asset mix)
* Other income stood at Rs.713 Cr up 12% YoY from Rs.638 Crin Q2’FY25 aided by fee income from business growth and higher distribution fee from third party products.
* Total opex at Rs.1,647 Cr grew 11% YoY from Rs.1,481 Cr in Q2’FY25 led by higher business volumes and Investment in manpower as we expand distribution to pan-India with special focus on 6 big states of Andhra Pradesh, Karnataka, Tamil Nadu, Telangana, Uttar Pradesh and West Bengal
* The Bank’s pre-provisioning operating profit (PPoP) for Q2’FY26 grew by 7% YoY to Rs.1,210 Crore compared to Rs.1,132 Crore in Q2’FY25.
* Net Provisions for the quarter was at Rs.481 Cr, up 29% YoY from Rs.373 Cr in Q2’FY25 but down 10% QoQ from Rs.533 Cr in Q1’FY26
* PAT at Rs.561 Cr was down 2% YoY compared to Rs.571 Cr in Q2’FY25
* The Return on Asset (ROA) and Return on Equity (ROE) for Q2’FY26 stood at 1.4% and 12.4% respectively
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