AU Small Finance Bank shares jumped over 7% in morning trade on August 8, 2025, after Motilal Oswal reiterated its ‘Buy’ rating on the stock, setting a target price of ₹875. This implies an 18% upside from its last close at ₹744.10. The bullish outlook follows a major regulatory milestone: the Reserve Bank of India has granted in-principle approval for AU SFB to convert into a Universal Bank—making it the first to do so under the revised framework.
According to Motilal Oswal, the RBI’s nod validates AU’s strong operational execution and franchise quality. The brokerage sees this transition as a transformative move that removes existing regulatory constraints, including borrower exposure limits and portfolio granularity requirements. This opens the door for AU to expand into larger-ticket lending across retail, SME, and mid-corporate segments.
In a note, Motilal Oswal highlighted that Universal Bank status could significantly enhance AU’s brand visibility, aiding stronger CASA (Current Account Savings Account) mobilisation. This, in turn, is expected to reduce funding costs and reinforce its liability profile—a critical factor in supporting long-term growth.
The approval also brings additional regulatory benefits. AU will now be subject to a lower Priority Sector Lending (PSL) requirement of 40%, compared to 75% earlier. Furthermore, the bank is now eligible to explore para-banking opportunities, including wealth management and forex services. These segments could help diversify revenue streams and improve overall fee-based income.
Another potential catalyst, according to the brokerage, is the pending RBI decision on extending the term of MD & CEO Sanjay Agarwal, whose current tenure ends in April 2026. A favorable outcome could act as a further re-rating trigger.
Looking ahead, Motilal Oswal anticipates a recovery in net interest margins (NIMs) and earnings in the second half of FY26, along with steady credit growth. The bank is also likely to pursue a capital raise to strengthen its balance sheet and support expansion plans, further boosting investor sentiment.
