Shares of AU Small Finance Bank (AU SFB) slid 8.2% on the NSE after the lender released its Q2 FY27 earnings, with the market pricing in a stiffer margin environment.
The bank’s net profit jumped 53% year‑on‑year to ₹857.7 crore, up from ₹561 crore in FY26‑Q2. Net interest income grew 31.5% YoY to ₹2,820.1 crore, while provisions eased to ₹359.4 crore from ₹371.5 crore. Gross NPA fell to 1.99% versus 2.10% in the prior quarter, yet net NPA edged up to 0.81% from 0.76%.
Management flagged 9‑bp NIM compression, citing heightened deposit competition and tighter liquidity. It projects FY27 credit costs to hover around 0.90%, up from 0.73‑0.74% in the first half, while targeting a 25% deposit growth and a 2.5× GDP‑aligned business expansion.
Kotak Institutional Equities downgraded the stock to ‘Reduce’ with a ₹950 target, citing the NIM decline and margin‑pressure narrative. The brokerage noted a 16% ROE and 50% YoY earnings growth but warned that the margin squeeze could erode short‑term returns.
Looking ahead, the bank’s Q3 performance will be pivotal to gauge the impact of El Niño‑induced agricultural stress and rising oil prices on credit quality. Investors will watch for any guidance on NIM recovery and the effectiveness of the deposit‑growth strategy as the fiscal year closes.