CITI has maintained its Neutral rating on AU Small Finance Bank with a target price of ₹850, indicating a modest upside of about 8% from the current market price of ₹790.30. The brokerage flagged a miss on core earnings for Q1FY26, driven by a sharp decline in margins and elevated credit costs, despite support from treasury gains and cost control.
Net interest margin (NIM) dropped by 38 basis points to 5.4%, and loan yields fell by 27bps QoQ, reflecting margin compression. Investment yields also declined by 20–25bps, while excess liquidity drag of 10bps further weighed on net interest income (NII), which came in 5% below CITI’s estimates.
On the asset quality front, slippages rose to 3.8%, led by stress in microfinance (MFI) collection efficiency, credit cards, and south-based mortgage portfolios. As a result, the bank raised its credit cost guidance by 10–15bps, acknowledging the elevated stress levels.
While the bank did benefit from ₹3 billion in treasury gains and maintained tight cost control, CITI believes these positives are not sufficient to offset the underlying structural concerns in the near term. Hence, it retains a cautious stance.
Disclaimer: The brokerage view is based on publicly available research and does not constitute investment advice. Please consult a certified financial advisor before making any investment decisions.
