AU Small Finance Bank's growth engine is intact, but questions remain

AU Small Finance Bank reported a strong start to FY27 with deposits growing 23.5% year-on-year to ₹1.58 trillion and gross advances expanding 25.8% to ₹1.4 trillion, driven by vehicle financing demand and Fincare merger synergies. CASA deposits rose 21.9% to ₹45,400 crore, lifting the CASA ratio to 28.8%. However, concerns remain around potential NIM compression to 5.83% from 5.96%, credit costs in retail and MSME segments, and a valuation of 2.9 times FY28 book value that already prices in much of the optimism. The stock gained 3% intraday and over 30% in the past year.