AU Small Finance Bank profit jumps 37% as credit costs fall
The Indian lender's shift towards secured lending drove a sharp drop in annualised credit costs, powering first-quarter profit growth despite a marginal uptick in bad loans.
AU Small Finance Bank posted a 37% jump in first-quarter net profit to ₹796 crore, driven by robust loan growth and a sharp reduction in credit costs. Net interest income rose 32% year-on-year to ₹2,696 crore, reflecting sustained expansion in its core lending book. Operating profit grew 9.4% to ₹1,435 crore.
The earnings highlight a strategic pivot that will interest institutional investors: the Indian lender is rapidly de-risking its book by prioritising secured assets. Secured retail and commercial loans grew 25% year-on-year, notably outpacing an 11% rise in unsecured lending. Overall loan disbursements surged 42% year-on-year during the quarter.
This shift towards collateralised lending is already reflecting in the bottom line. Annualised credit costs improved significantly to 0.8% from 1.4% in the year-ago quarter. Total provisions fell 30% year-on-year to ₹371 crore, directly boosting profitability despite a slight uptick in operating expenses, with the cost-to-assets ratio edging up to 4.0% from 3.9%.
Asset quality metrics showed minor sequential deterioration, a data point credit analysts will likely scrutinise. Gross non-performing assets edged up to 2.10% from 2.03% in the March quarter, while net NPA rose to 0.76% from 0.74%. The sequential rise in provisions to ₹371 crore from ₹269 crore included a one-time ₹23 crore buffer for microfinance and unsecured loan segments.
Funding dynamics remained supportive of the bank's expansion. Total deposits reached ₹1,57,727 crore, up 24% year-on-year and 3% sequentially. Low-cost current account savings account deposits grew 22% annually, keeping the CASA ratio stable at 29%. This cheap funding base is critical as the gross loan portfolio expanded to ₹1,44,250 crore.
Management signalled that the first-quarter results represent a structural improvement rather than a fleeting bounce. "Our performance is increasingly being driven by the underlying strength of the franchise and disciplined execution, rather than cyclical or one-off factors," said Sanjay Agarwal, founder, managing director and CEO. The lender cited a strong capital position and healthy liquidity as it progresses towards its goal of becoming a universal bank.
