AU Small Finance Bank Q1 profit jumps 37 per cent as loans, deposits maintain momentum

Mumbai: Banking on steady growth, AU Small Finance Bank kicked off FY27 with a strong first quarter, delivering double-digit growth across profits, loans and deposits while strengthening its balance sheet and accelerating investments in artificial intelligence.

The lender reported a 37 per cent year-on-year increase in net profit to Rs 796 crore for the quarter ended June 30, 2026, supported by healthy loan growth, rising deposits and lower provisions. Net interest income rose 32 per cent to Rs 2,695 crore, while the bank’s net interest margin expanded by 47 basis points to 5.9 per cent.

Core other income, excluding treasury income, climbed 33 per cent year-on-year to Rs 680 crore. Operating expenses rose 26 per cent to Rs 1,949 crore as the bank continued investing in technology, distribution and talent.

Pre-provisioning operating profit increased 9 per cent to Rs 1,435 crore, while core pre-provisioning operating profit, excluding treasury income, surged 41 per cent to Rs 1,426 crore. At the same time, provisions fell 30 per cent year-on-year to Rs 371 crore despite a one-time additional provision of Rs 23 crore to strengthen provisioning across its microfinance, personal loan, business loan, two-wheeler and EEFI portfolios.

The bank delivered an annualised return on assets of 1.7 per cent and return on equity of 15.6 per cent during the quarter.

Growth remained broad-based across the balance sheet. Total deposits increased 24 per cent year-on-year and 3 per cent sequentially to Rs 1,57,727 crore. CASA deposits rose 22 per cent to Rs 45,399 crore, taking the CASA ratio to 29 per cent. Current account deposits jumped 34 per cent to Rs 8,498 crore, while savings account deposits grew 19 per cent to Rs 36,902 crore.

Gross advances rose 23 per cent year-on-year and 3 per cent quarter-on-quarter to Rs 1,44,250 crore, while loan disbursements expanded around 42 per cent. Secured retail and commercial lending grew 25 per cent, significantly outpacing the 11 per cent growth in unsecured businesses such as microfinance, credit cards and personal loans.

Asset quality also improved during the quarter. Gross non-performing assets declined to 2.10 per cent from 2.47 per cent a year earlier, while net NPA fell to 0.76 per cent from 0.88 per cent. Fresh slippages dropped 22 per cent to Rs 798 crore from Rs 1,027 crore, and annualised credit cost improved to 0.8 per cent from 1.4 per cent in the corresponding period last year.

The bank maintained a provision coverage ratio of 85 per cent, including technical write-offs, while carrying contingency provisions of Rs 37 crore and floating provisions of Rs 41 crore. Around 96 per cent of its microfinance portfolio remained covered under the Credit Guarantee Fund for Micro Units scheme.

Liquidity and capital buffers also remained comfortable. The credit-deposit ratio, excluding refinance from development finance institutions such as NABARD, SIDBI, NHB and MUDRA, stood at 80 per cent. Average liquidity coverage ratio remained stable at 119 per cent, with the bank holding an additional 10 to 15 per cent liquidity buffer outside regulatory requirements. Capital adequacy stood at 18.9 per cent, including a Tier I ratio of 17.1 per cent.

Commenting on the performance, AU Small Finance Bank founder, managing director and chief executive officer Sanjay Agarwal said the Indian economy had remained resilient despite geopolitical uncertainties and a challenging operating environment.

He said the bank delivered “a strong and well-rounded performance” with healthy growth in deposits and advances alongside improved profitability, reflecting investments made over the past two years in distribution, technology, product capabilities and talent.

“Our performance is increasingly being driven by the underlying strength of the franchise and disciplined execution, rather than cyclical or one-off factors,” Agarwal said, adding that the bank’s capital strength, liquidity position and underwriting capabilities would help it navigate uncertainty while pursuing sustainable long-term growth.

Alongside its financial performance, the bank announced a leadership change, elevating Yogesh Jain from chief operating officer to deputy chief executive officer with effect from July 25. He will continue reporting to the managing director and chief executive officer as part of the senior management team.

Technology remained another major focus during the quarter. The bank rolled out an agentic AI-powered gold loan origination platform in a controlled environment and has begun extending it to branches through a mobile-native version. It is also expanding the platform to mortgage lending while working with Intellect Design Arena to build an enterprise-wide agentic AI platform for commercial banking loan origination.

More than 50 AI use cases are being developed under a newly established AI Centre of Excellence to improve automation, productivity and operational efficiency. Around 70 per cent of anti-money laundering alerts are now reviewed using AI models, while more than 90 per cent of banking transactions and service requests are processed through the AU 0101 digital platform. During the quarter, the bank also introduced an upgraded UPI interface on AU 0101 version 2.0.

The lender continued expanding its physical footprint, adding around 130 net touchpoints, including 16 new liability branches primarily in urban markets. It now serves more than 1.25 crore customers through over 2,920 banking touchpoints across 21 states and four Union Territories, supported by a workforce of more than 58,400 employees.

Beyond banking, the lender expanded its product portfolio with four new lifecycle-based credit cards, launched zero-margin inward and outward remittance services, and strengthened its 3-in-1 banking proposition with Motilal Oswal Financial Services by introducing a fund-blocking feature for investors.

The quarter also saw continued progress in its social impact initiatives. AU Ignite has now trained more than 36,000 young people and connected over 26,000 with employment. Bano Champion supports around 6,000 young athletes across 75 locations, while AU Udyogini has empowered more than 3,900 women entrepreneurs across 1,000 villages. Through AU Kartavya, the bank has supported more than 1,521 health camps, over 360 Jal Banks, 16 open-air gyms, 34 police booths and infrastructure projects across schools and communities.

The bank was also recognised among India’s Top 10 Best Companies To Work For 2026 by Great Place To Work.

With in-principle approval from the Reserve Bank of India to transition into a universal bank, AU Small Finance Bank enters the rest of FY27 with strong capital, improving asset quality and an expanding technology-led banking franchise that it believes can sustain profitable growth over the long term.