J.P. Morgan maintained a neutral rating on AU Small Finance Bank, cutting its target price to Rs 625, as asset quality challenges weighed on Q3 FY25 results. The bank reported net profit of Rs 528.4 crore, down 7.5% QoQ, with gross NPA rising to 2.31% from 1.98% in Q2 FY25 and net NPA increasing to 0.91% from 0.75%. Gross slippages rose to Rs 2,335.5 crore, up from Rs 1,901.7 crore in the previous quarter, primarily due to higher stress in the unsecured portfolio.
NII growth remained muted at 2.4% QoQ to Rs 2,022.5 crore, despite 8% sequential average asset growth, as adverse asset and liability mix and interest reversals offset gains. While slippages are expected to remain elevated in Q4, management noted early signs of improvement in delinquencies since December, with moderation anticipated from Q1 FY26 onwards.
J.P. Morgan highlighted that while the commentary on improving delinquencies is consistent across lenders, it remains cautious about the bank’s asset quality and profitability trajectory.
