AU Small Finance Bank delivered robust deposit growth in Q1 2026, with total deposits increasing 23.5% year-on-year to ₹1,57,730 crore as of June 30, 2026, compared with ₹1,27,696 crore in the corresponding period last year. According to the bank's provisional business update, deposits also showed 3.3% sequential growth from ₹1,52,661 crore in the March quarter. The bank's CASA deposits rose 21.9% year-on-year to ₹45,400 crore from ₹37,241 crore in the year-ago period, while increasing 4.7% sequentially from ₹43,357 crore in the preceding quarter. The CASA ratio improved sequentially to 28.8% from 28.4% at the end of March quarter, demonstrating the bank's ability to mobilize low-cost deposits despite intense competition in the banking sector.
The bank's gross loan portfolio, including securitised, assigned portfolio and IBPC book, rose 22.6% year-on-year to ₹1,44,250 crore from ₹1,17,624 crore, demonstrating strong lending momentum. As reported by CNBC TV18, gross advances, excluding securitized and assigned portfolios and interbank participation certificates, increased 25.8% year-on-year to ₹1,40,460 crore from ₹1,11,614 crore, while growing 3.2% sequentially from ₹1,36,041 crore. The securitised, assigned portfolio and IBPC book stood at ₹3,790 crore, compared with ₹6,010 crore a year earlier and ₹4,286 crore at the end of March quarter. The bank's mainstay vehicle financing segment, which made up a third of its loan book as of March 31, has been supporting growth, aided by GST 2.0-powered automobile demand, while growing traction in southern markets and management's push on gold loans is likely to have supported credit growth in Q1.
While the bank maintained strong growth momentum, questions remain about margin sustainability as AU SFB had increased deposit rates in April, likely pushing up the cost of funds in Q1. Motilal Oswal Financial Services expects AU SFB's net interest margin to compress to 5.83% from 5.96% in the previous quarter. The bank has invested heavily in distribution expansion, technology, manpower and marketing, with growth so far driving down cost-to-income ratios. It is important for this trend to sustain this quarter as the bank transitions into a universal bank, with margins expected to expand and return ratios to improve on the back of rationalized savings account interest rates and lower regulated priority sector lending.
AU SFB has launched several initiatives to boost fee income and deposit growth, including a zero-margin forex remittance service to expand non-resident Indian offerings in May, and raising FCNR deposit interest rates to as much as 7.1%—the highest among Indian banks since the Reserve Bank of India sweetened the deal by lifting rate caps and taking on currency hedging. The bank has also entered wealth partnerships for cross-selling and accelerated fee-income growth, and partnered with Maruti Suzuki India Ltd to drive growth in first-time car buyers' vehicle financing. The stock gained 3% intraday on Monday following the business update, with the stock having gained over 30% in the past year, taking its valuation to 2.9 times FY28 book-value estimates according to Bloomberg. The bank has guided for about 0.9% credit cost in FY27, though credit-costs need monitoring after the finance ministry's earning-warning signals of stress in retail, agriculture and MSME loans.
