AU Small Finance Bank reports a 41% increase in Q3 profit to Rs 528 crore, with NII up by 53%
AU Small Finance Bank reported a 41% year-on-year rise in net profit in the third quarter of its fiscal FY25 and announced its results. Net profit of the bank for October and December stood at Rs 528.45 crore against Rs 375.25 crore in the same period the previous year. The bank though posted a sequential drop in the profit of nearly 7.5 percent in Rs 571.2 crore profit in the third quarter from the second quarter.
NII grew by nearly 53% year on year and stood at Rs 2,022.5 crore in Q3. Asset quality was not robust, however, despite this performance in NII. The gross and net NPA margin of the bank, however it improved to 2.31% and 0.91% respectively from 1.98% and 0.75% in Q2 FY25.
Strong Growth in Net Interest Income and Total Income
The bank reported an increase of nearly 49% in its total income for Q3 FY25, which stood at Rs 4,731.89 crore compared to Rs 3,178.05 crore in Q3 FY24. The net interest income was the main contributor to this jump. The good news in the bank’s lending portfolio and evidence of its expanding business shows the growth is strong.
Challenges were also noted in the quarter, including subdued economic momentum in the last half of Q3, the bank admitted. However, as a whole, macroeconomic conditions were less strong than the half of FY 25 and the festive period gave business some pick-up. The above testing was relatively immune as the bank was in a very good financial position balance and it continued to have a tacit orientation of exploitation of interest rate pressures and deposit growth.
Weakening Asset Quality and Elevated Credit Costs
Although the income growth was good, asset quality was also in decline. The gross NPA margin rose to 2.31% as the net NPA margin went up to 0.91% from 0.75% in the previous quarter. AU Small Finance Bank said its higher slippages in its microfinance portfolio, mainly in Q2 and Q3, reflected a corrective phase in the industry. The trend should continue into Q4 FY25 said the bank.
Elevated credit costs were also reported by the bank in its credit card segment. These were expected costs, it said and helped them calibrate their approach to risk management and digital underwriting frameworks.
Stock Performance and Market Outlook
After Q3 results were announced, AU Small Finance Bank’s stock climbed over 2% to trade at Rs 594.95. After a period of volatility in the stock which is currently trading above 11% higher than its 52-week low of Rs 534 this increase happened. Despite this, the stock is still 21% less than the 52-week high of Rs 755. For example, the market capitalization of the bank is presently about Rs 44,230 crore.
However, the strong future potential exists, despite asset quality challenges, based upon the bank’s ability to grow net interest income and total income. AUSmall Finance Bank focuses on its risk management practices and sustainably maintaining business. The bank should also be able to stabilize ongoing correction in unsecured advances particularly microfinance, as it has been refining its lending strategies.
