Mirae Asset Sharekhan has maintained a ‘Buy’ rating on AU Small Finance Bank and raised the target price to Rs 900. This implies a 15% upside for the share price from the current levels. The increase in target price comes on the back of steady growth and an improving profitability outlook. The brokerage expects return on assets (RoA) to expand by 20-30 basis points over FY25- FY27.
Adding to that, the lender’s profitability is expected to improve from the first half of FY26 as headwinds decline on the margin and asset quality front.
Mirae Asset on AU Small Finance Bank: Margins to improve with a lag
Management has guided that NIMs are likely to remain under pressure in the near term due to the lower repo rate, given that 30% of the asset book is based on the floating rate.
The bank has taken a cut in (savings account) SA deposit rates by 25 basis points each in April and June 2025. Currently, the bank’s peak SA rate stands at 6.75%. The bank has also tweaked the term deposit rate lower in certain buckets. Cumulatively, all these should help the bank to partially counter margin pressure, but it is confident that lower deposit rates, lower interest reversals on NPA and a 70% fixed rate asset book should gradually support margins with a lag.
Mirae Asset on AU Small Finance Bank: Strong loan growth outlook
The bank is confident of clocking strong loan growth (20-25%) in FY26. It expects to secure a universal banking license within CY25 and subsequently decide on capital-raising.
The bank is confident of growing the loan book by 20-25% in FY26E. Deposit growth is expected to be in similar lines. Loan growth is expected to be broad-based across secured segments.
Mirae Asset on AU Small Finance Bank: Asset quality weak, but outlook improving
Lower repo rate and normalisation of credit cost will aid profitability from the second half of FY26 onwards. The lender’s overall asset quality remained weak in Q4 FY25, as slippages remained elevated at 3.3% annualised in Q4 FY25, mainly led by unsecured loans. However, slippages were lower compared to Q3 FY25, 3.8% sequentially.
AU Small Finance Bank’s credit cost surged to 1.7% annualised as against 1.4% quarter-on-quarter as the bank took accelerated provisions towards unsecured loans, which resulted in elevated provisions and 100% PCR on unsecured book.
The bank is now guiding that the unsecured book delinquency trends are showing signs of reversal, along with improvement in collection efficiency. That’s why the brokerage house is expecting a sharp improvement in slippages/ credit cost in H2 FY26.