Earnings Outlook
AU Small Fin Bank Q1 PAT seen down 2% as NIMs may contract
This story was originally published at 14:54 IST on 18 July 2025
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By Kabir Sharma
MUMBAI – A contraction in net interest margins and a rise in credit costs are expected to weigh on AU Small Finance Bank Ltd.'s net profit for the quarter ended June, according to brokerages tracking the lender. However, brokerages expect the bank to report better earnings than its peers due to a steady growth in its net interest income.
According to the average of estimates by nine brokerages, AU Small Finance Bank is expected to report a 2.1% on-year fall in its net profit for the latest quarter to INR 4.92 billion from INR 5.03 billion a year ago. Sequentially, the picture remains the same, with a 2.3% fall in bottom line expected from INR 5.04 billion a quarter ago. Shares of the bank have risen sharply, by 28.6%, since the bank declared its earnings for the March quarter. At 1254 IST, shares of the bank were at INR 789.10, down 1%, on the National Stock Exchange.
Eight of the brokerages tracking the lender have a 'buy' rating on its shares, while one has recommended to 'hold' the stock and four have a 'sell' rating.
"Higher margin compression coupled with elevated credit cost should weigh on earnings. Slippages (are expected) to moderate on quarter, but still remain elevated," Emkay Global Financial Services said in a note. Despite the stress in the microfinance portfolio, Jan-Mar saw some improvement in the overall asset quality of the bank, with the gross non-performing asset ratio and the net non-performing asset ratio improving to 2.28% and 0.74%, respectively, from 2.31% and 0.91% in Oct-Dec.
"We expect asset quality situation to show signs of improvement because of recovery in the microfinance industry, while credit card challenges are likely to continue. Credit cost is likely to remain elevated as the bank provides for residual stress in microfinance," Kotak Institutional Equities said in a note. The slippage ratio improved to 0.9% in Jan-Mar from 1.0% in Oct-Dec, led by an improvement in secured assets. Net credit cost for 2024-25 (Apr-Mar) was 1.3% of total average assets.
Asset quality ratios are expected to remain stable or improve slightly in Apr-Jun, brokerages said. However, provisioning may remain elevated due to stress in the microfinance portfolio, they said. Total provisions of the bank rose 26.6% sequentially to INR 6.35 billion in Jan-Mar.
Brokerages expect the healthy loan growth to support the bottom line of the bank, they said. According to the provisional data released by the bank earlier this month, its gross advances were up 23.1% on year at INR 1.12 trillion as of Jun. 30. Total deposits saw a growth of 31.3% on year and 2.8% on quarter to INR 1.28 trillion as of Jun. 30.
According to estimates from brokerages, the net interest margin of the bank is seen falling 23-25 basis points in the June quarter, mainly led by lower yield on advances. The net interest margin declined 6 bps on quarter to 5.80% in Jan-Mar, primarily on account of the asset mix, the bank had said.
Net interest income, the core income of the bank, is seen rising 12.1% on year to INR 21.53 billion, according to an average of estimates from brokerages, as loan growth has remained robust. The net interest income of the bank rose 4% on quarter to INR 20.94 billion in Jan-Mar.
Analysts said the bank is likely to receive its universal banking licence soon. Consequently, the changing mix between secured and unsecured loans, along with the management's guidance on scaling secured lending, will be important factors to monitor.
Following are the Apr-Jun earnings estimates for AU Small Finance Bank based on reports from 9 brokerage firms in descending order by the estimate of net profit:
| Brokerage | Net Interest Income (In INR million) | Net Profit (in INR million) |
| Centrum Broking Ltd | 21,958.00 | 5,305.00 |
| Motilal Oswal Financial Services Ltd | 21,345.00 | 5,531.00 |
| Kotak Institutional Equities | 21,720.00 | 5,419.00 |
| Emkay Global Financial Services Ltd | 21,884.00 | 5,200.00 |
| Nirmal Bang Equities Pvt Ltd | 22,103.00 | 5,070.00 |
| JM Financial Institutional Securities Pvt Ltd | 21,683.00 | 4,748.00 |
| Nomura Equity Research | 20,800.00 | 4,600.00 |
| Nuvama Wealth Management Ltd | 20,300.00 | 4,400.00 |
| InCred Research Services Pvt Ltd | 22,000.00 | 4,000.00 |
| Average | 21,532.56 | 4,919.22 |
End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Tanima Banerjee
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