Why Did AU Small Finance Bank Report Lower Profit Despite Healthy NII Growth in Q2 FY26?
AU Small Finance Bank (AU SFB) delivered a mixed performance in Q2 FY26, reporting steady loan growth and strong net interest income (NII) expansion but a slight decline in profitability. The lender maintained stable asset quality despite a rise in gross NPA value, reflecting prudent underwriting and controlled credit risk.
For the September 2025 quarter, AU Small Finance Bank posted a net profit of ₹560 crore, down 2% year-on-year and 3% sequentially. The decline came amid elevated provisioning and operating expenses. However, NII increased 9% YoY and 5% QoQ to ₹2,144 crore, driven by continued loan book expansion and higher yields in the retail and MSME segments.
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The bank’s operating profit stood at ₹1,209 crore, down 8% QoQ, reflecting higher costs linked to network expansion and technology upgrades. Provisions declined 10% QoQ to ₹480 crore, providing partial relief to the bottom line. Asset quality improved slightly with Gross NPA at 2.41% versus 2.47% in Q1, while Net NPA remained steady at 0.88%.
In absolute terms, Gross NPA rose 3% QoQ to ₹2,835 crore, and Net NPA increased 5% QoQ to ₹1,015 crore, indicating controlled credit stress. The management highlighted that asset quality remains strong in secured retail segments, supported by diversified exposure and robust recovery mechanisms. Advances continued to grow across rural, SME, and affordable housing portfolios, sustaining the bank’s strong growth trajectory.
Analysts noted that AU SFB’s core operating performance remains resilient, supported by consistent deposit growth and margin discipline. However, elevated cost-to-income ratios and higher provisions may continue to weigh on short-term profitability. The management remains optimistic about maintaining a steady loan growth outlook while strengthening digital banking initiatives to enhance efficiency.
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Looking ahead, AU SFB’s profitability will depend on stable asset quality and loan growth sustainability amid a high interest rate environment. A focus on technology-led efficiency and deeper penetration in underserved regions positions the bank for balanced long-term growth despite near-term headwinds.
Investor Takeaway
Indian-Share-Tips.com Nifty Expert Gulshan Khera, CFP®, who is also a SEBI Regd Investment Adviser, observes that AU Small Finance Bank’s performance shows stability in lending and credit quality even as profit moderates slightly. Investors should focus on operational efficiency and provisioning trends before taking long-term positions in the stock.
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Related Queries on Bank Performance
- Why Did AU Small Finance Bank’s Profit Decline in Q2 FY26?
- How Stable Is AU SFB’s Asset Quality Despite NPA Rise?
- What Are AU Small Finance Bank’s Key Growth Drivers for FY26?
SEBI Disclaimer: The information provided in this post is for informational purposes only and should not be construed as investment advice. Readers must perform their own due diligence and consult a registered investment advisor before making any investment decisions. The views expressed are general in nature and may not suit individual investment objectives or financial situations.
