Motilal Oswal has maintained a ‘Buy’ rating on AU Small Finance Bank, assigning a target price of ₹875, implying an upside of 18% from the current market price of ₹744.10. The rating comes after the Reserve Bank of India granted in-principle approval for AU SFB to transition into a Universal Bank, a first under the new framework.
The brokerage believes this development validates AU’s strong franchise and execution capabilities, and marks a pivotal shift in its operational model. The transition eliminates earlier regulatory caps on borrower exposure and granularity, allowing AU to scale into larger-ticket segments including retail, SME, and mid-corporate lending.
Motilal Oswal added that the Universal Bank status will enhance the bank’s brand positioning and support stronger CASA mobilisation, ultimately helping to lower funding costs and bolster its liability franchise.
Additionally, a reduced PSL requirement of 40% and permission to enter para-banking segments like wealth management and forex are seen as key enablers for improved operating flexibility and fee-based income.
The brokerage also noted that RBI’s future approval for the term extension of MD & CEO Sanjay Agarwal (due April 2026) could act as another re-rating trigger. It expects NIM and earnings recovery in the second half of FY26, along with steady credit growth and a potential capital raise to further support the stock’s upward trajectory.
Disclaimer: The views and recommendations expressed by Motilal Oswal are their own and do not represent the opinion of this publication. Investors are advised to consult a certified financial advisor before making any investment decisions.
