More Stories

Informist, Wednesday, Oct. 15, 2025

 

By Priyasmita Dutta

 

NEW DELHI – Contraction in net interest margin and a rise in credit cost is expected to weigh on AU Small Finance Bank Ltd.'s net profit for the September quarter, according to brokerages. A rise in slippages, leading to higher provisions during Jul-Sept, is also expected to drag down the small finance bank's bottom line, analysts said.

 

"Lower margins and elevated credit cost to weigh on earnings," Emkay Global Financial Services Ltd. said, adding that slippages would remain elevated in the quarter under review. According to Kotak Institutional Equities, credit cost is likely to remain benign for most players in the banking sector, except those with sizeable microfinance business like AU Small Finance Bank. 

 

However, brokerages expect the bank to report better earnings than its peers due to steady growth in net interest income, despite the overall fall in interest rates. According to the average of the estimates of nine brokerages, AU Small Finance Bank is expected to report a 9% on-year fall in its net profit for the latest quarter at INR 5.20 billion, against INR 5.71 billion a year ago. Sequentially, the net profit is seen down nearly 11%. 

 

The brokerages had fairly divergent views on the small finance bank's net profit, possibly due to the difference in estimates of provisions. JM Financial Institutional Securities Pvt. Ltd.'s estimate for net profit is the lowest at INR 4.67 billion, while Emkay Global Financial Services provided the highest estimate of INR 6.08 billion for the bottom line. The small finance bank is scheduled to report its September quarter earnings on Friday.

 

Five brokerages expect the small finance bank's net interest margin to be in the range of 5.0-5.34% during Jul-Sept, compared to 5.4% in the June quarter and 6% in the corresponding quarter a year ago. "We expect NIM to show a flattish trend quarter-on-quarter supported by a pick-up in repricing of deposits," Kotak Institutional Equities said. Industry-wide, interest margins are seen under pressure due to 100 basis points of repo rate cuts by the Reserve Bank of India's Monetary Policy Committee in 2025 so far, which have brought the benchmark repo rate to 5.50%. 

 

In the June quarter, the small finance bank's net profit had risen 16% on year and 15% on quarter to INR 5.81 billion owing to a 59% rise in other income, driven largely by treasury income. However, a whopping 89% on-year rise in provisioning to INR 5.33 billion had eaten into the profit. 

 

Since it announced its June quarter results, the small finance bank's stock has fallen 2.2%. At 1347 IST, the stock was trading at INR 776 on the National Stock Exchange. AU Small Finance Bank is the largest small finance bank in India by assets and market capitalisation and had received an in-principle approval from the central bank in August to transition into a universal bank. It has a network of over 2,505 banking touchpoints across 21 states and four Union territories. It had a customer base of over 11.5 million and a workforce of more than 53,000 as of Jun. 30.

 

According to brokerages, the trend of higher provisions weighing on the bottomline is expected to continue in the September quarter as well. Four brokerages have estimated AU Small Finance Bank's provisions to rise to INR 4.6 billion–INR 5.2 billion, significantly higher than the INR 3.73 billion set aside as provisions in the same quarter a year ago. 

 

The higher provisions emanate from the higher slippages expected during the quarter, which Nuvama Wealth Management Ltd. sees rising to INR 9.9 billion , 35% higher on year. The asset quality, is however, expected to show an improvement, led by unsecured retail portfolios, particularly credit cards and microfinance, brokerage Kotak said. "Asset quality ratios to remain broadly stable," Motilal Oswal Financial Services added. 

 

Net interest income, the core income of the bank, is seen rising 4.9% on year to INR 20.71 billion, according to the average of estimates from brokerages, as "business growth has remained healthy". The net interest income of the bank had risen 6% on quarter to INR 20.45 billion in the June quarter.

 

As per provisional data by the small finance bank, its gross advances rose slightly over 22% on year to INR 1.18 trillion as of Sept. 30. Total deposits rose 21% on year and 4% on quarter to INR 1.33 trillion as of Sept. 30. 

 

Analysts said the lender's outlook for credit cost for Oct-Mar would be closely watched, along with any signs of a pick-up in business growth. Of the 15 brokerages reports on the company available with Informist, eight have a 'buy' rating on the stockwith an average target price of INR 815 per share. Two brokerages have a 'hold' rating and five brokerages have a 'sell' rating. 

 

The following are the Jul-Sept earnings estimates for AU Small Finance Bank from nine brokerages in descending order of the estimate of net profit in INR million:

 

Brokerage	Net interest income	Net profit
Emkay Global Financial Services Ltd	21,038	6,077
Kotak Institutional Equities	21,392	5,581
Nirmal Bang Equities Pvt Ltd	20,568	5,358
ICICI Securities Ltd	20,359	5,193
YES Securities (India) Ltd	21,195	5,039
Nomura Equity Research	20,700	5,000
Motilal Oswal Financial Services Ltd	20,233	4,947
Nuvama Wealth Management Ltd	20,200	4,900
JM Financial Institutional Securities Pvt Ltd	20,722	4,674
Average	20,711.89	5,196.56

 

End

 

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Edited by Avishek Dutta

 

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

 

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd. by NSE Data & Analytics Ltd., a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt. Ltd.

 

Informist Media Tel +91 (11) 4220-1000

Send comments to feedback@informistmedia.com

 

© Informist Media Pvt. Ltd. 2025. All rights reserved.