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We hosted Mr. Sanjay Agarwal, Founder, Managing Director and CEO of AU Small Finance Bank, as a part of CEO Track at AGIC 2025. Here are our key insights from the session:

Entering the next orbit of growth with universal bank transition

AU has become the first SFB to receive the Reserve Bank of India’s in-principle approval to transition into a universal bank. This milestone is not merely a change in license but a transformation in identity, credibility and opportunity. It signals AU’s arrival as a full-spectrum banking institution with the ability to tap deeper pools of deposits, expand product breadth, and structurally lower its cost of funds. AU currently has a balance sheet of over INR1.6t, deposits of INR1.28t and a customer base of 11.6m as of Jun’25. AU is now positioned to scale more aggressively while de-risking its franchise. The coming years will see AU leverage this transition to strengthen brand acceptance, deepen relationships in urban India, and accelerate the pace of franchise building.

Liability franchise – pivoting from rate to relationship

Deposits grew 31% YoY in 1QFY26, with CASA steady at ~29%. While past growth was led by competitive pricing, the universal bank tag allows AU to pivot toward relationship-led liabilities, with stronger traction from corporates, MSMEs and massaffluent customers. A planned addition of 70-80 urban, liability-focused branches and an expanded transaction banking suite are expected to strengthen deposit stickiness and lower funding costs, driving a more sustainable liability franchise over the next 12-18 months.

Secured lending remains the core growth engine

Secured loans (~90% of AUM) remain the anchor of AU’s strategy. The wheels business (32% of AUM) is expected to sustain double-digit growth, supported by deeper reach in South/East and a broad product mix. Mortgages and MBL (33% of AUM) are positioned for ~20% growth once southern stress normalizes by end-FY26. The commercial banking book (~21% of AUM) is expanding at ~30% YoY, aided by transaction-led solutions. Gold loans, though just 2% of AUM, are emerging as a scalable, high-RoA business. This secured-led approach provides compounding growth with controlled risk, ensuring resilience through cycles.

Bank to adapt calibrated approach in unsecured lending

AU continues to rationalize its unsecured portfolio (down 23% YoY), prioritizing stability over near-term growth. The MFI book (~6% of AUM) is being rebuilt under tighter underwriting, with ~97% of 1Q disbursements covered by CGFMU guarantees, which should cap credit costs. In credit cards, corrective actions including sharper analytics and limit adjustments are underway, with stress expected to peak in 1HFY26 before stabilizing. This prudent approach ensures that unsecured will remain a tactical lever, rather than a growth driver, until market conditions normalize. The bank aims to operate at 80-90bp credit cost over the medium term.

Looking ahead: Universal banking remains a key value compounder

Over the next three years, AU’s growth playbook rests on four pillars: a more granular and sticky liability base, secured-led loan compounding across wheels, mortgages and commercial banking, calibrated participation in unsecured until stress abates, and steady RoA expansion toward 1.8% by FY27. As the first SFB to make the leap, AU is uniquely positioned to emerge not just as a universal bank in form, but as a universal franchise in substance — profitable, resilient and built for scale.

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