AU Small Finance Bank posts 53% rise in Q2 earnings, margin widens

AU Small Finance Bank, headquartered in Jaipur, reported on Saturday, October 24, 2026, that its net profit for the July to September quarter rose about 53% from a year earlier to Rs 857.69 crore. Net interest income grew 32% to about Rs 2,820 crore, its lending margin widened, and gross bad loans fell below 2% of advances, while deposits rose about 28.6%.

Small finance banks were licensed by the Reserve Bank of India to serve people and businesses that large banks often overlook: small traders, micro and small enterprises, farmers and households in smaller towns, many of whom earlier depended on informal moneylenders. AU Small Finance Bank, based in Rajasthan, is one of the most closely watched of these lenders, and its results are read as a signal of how credit is flowing to that part of the economy.

The quarter's numbers show growth on both sides of the balance sheet. Deposits rising faster than loans, at about 28.6% against 25%, matters because smaller banks have historically found it harder than large banks to attract savings, and stable deposits make lending cheaper and safer. Loan growth of 25% indicates continuing demand for credit from the bank's customers.

The margin moved in the opposite direction from some larger lenders this season, such as Kotak Mahindra Bank, whose margin narrowed. AU's net interest margin, the gap between what it earns on loans and pays on deposits, rose to 5.8%. Small finance banks usually earn higher margins than large banks because they lend to riskier, smaller borrowers at higher rates; the question for investors is always whether those higher returns are eaten up by bad loans. On that front, this quarter was reassuring: gross bad loans fell to 1.99% from 2.41% a year ago, and net bad loans to 0.81%.

There were softer spots. Some analysts noted that operating expenses continued to rise and that net bad loans edged up slightly compared with the previous quarter, even though they were lower than a year earlier. The bank's ability to keep costs in check while it expands will remain a point to watch.

AU Small Finance Bank Q2 FY27 at a glance Measure | September 2026 quarter | A year earlier Net profit | Rs 857.69 crore | Rs 560.87 crore Net interest income | about Rs 2,820 crore | Rs 2,144 crore Net interest margin | 5.8% | 5.5% Gross NPA | 1.99% | 2.41%

Short-term: The strong profit and wider margin are likely to support investor confidence in the bank, while analysts watch costs and the slight rise in net bad loans from the previous quarter.

Long-term: Steady deposit growth and improving asset quality strengthen AU's position as it competes with larger banks for customers in smaller towns, and support continued lending to small businesses and households.

Who is affected: The bank's borrowers, including small businesses and households in Rajasthan and beyond; its depositors; its shareholders; and the wider small finance bank sector, for which AU is a bellwether.

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