AU Small Finance Bank Ltd Management Discussions

Global Economy on Edge

The world economy, which was broadly resilient in 2025, is facing renewed headwinds, primarily due to geopolitical tensions, particularly the ongoing conflict in the Middle East. As a baseline scenario, the IMFs April 2026 World Economic

Outlook has projected global growth at 3.1% in 2026 and 3.2% in 2027, which is below the long-term historical average growth of 3.7%. However, in a more adverse scenario involving prolonged conflict, growth could fall to approximately 2.5%.

In a severe scenario with significant disruption to global energy supplies or trade routes, growth could even drop to 2%, approaching recessionary conditions.

Inflation has re-emerged as a key concern, with global inflation projected to rise to about 4.4% in 2026 before moderating to around 3.7% in 2027. The uptick in inflation is largely attributed to higher energy prices and supply chain disruptions, especially those affecting critical trade routes. This has complicated the task of central banks, which now face an intense trade-off between maintaining tight monetary policy to control inflation and easing policy rates to support weakening growth.

As regards the growth outlook, risks are skewed to the downside. Key risks include further escalation of geopolitical tensions, persistently high oil prices, increasing trade fragmentation and protectionist measures, tightening global financial conditions, and high levels of public debt that limit fiscal space. There are some upside possibilities, such as stronger-than-expected gains from artificial intelligence or a faster easing of geopolitical tensions. Signing of MoU between the US and Iran for a ceasefire is considered to be a positive development, which is expected to normalise crude oil prices to the pre-war level if sanctions are removed against Iran on an enduring basis. From a policy perspective, maintaining a credible monetary policy to anchor inflation expectations, even as growth slows, assumes importance. Globally, there is also a need to rebuild fiscal buffers, given elevated debt levels, and strengthen international cooperation to address shared challenges such as trade disruptions and energy security. Structural reforms aimed at boosting productivity, including through digitalisation and innovation, are also critical for medium-term growth.

Emerging market and developing economies are expected to be particularly vulnerable due to their dependence on imported commodities and exposure to volatile capital flows. Within this group, India stands out, with growth projected at around 6.5% in 2026, supported by strong domestic demand and robust services exports, making it the fastest-growing major economy.

Broadly, the global economy is navigating a fragile phase marked by slowing growth, persistent inflation pressures, and elevated uncertainty. Geopolitical developments have become the dominant influence on the economic outlook, and the balance of risks remains tilted to the downside, requiring cautious and coordinated policy responses.

Indias macroeconomic performance in FY 2025-26 remained robust. According to the provisional estimates by the NSO, Indias real GDP growth was 7.7% in FY 2025-26, supported by strong domestic demand, resilient activity in the services sector, and sustained public capital expenditure. The economy demonstrated resilience despite global headwinds such as elevated global uncertainties, geopolitical tensions, reciprocal tariffs by the US, and commodity price volatility.

Private consumption showed steady improvement during the year, aided by easing inflation, rising rural incomes, and stable urban demand. Government capital expenditure continued to play a critical role in sustaining growth momentum, particularly through infrastructure development in transport, logistics, and energy sectors. Investment activity remained mixed, with public investment strong while private corporate investment showed gradual but uneven recovery, reflecting cautious business sentiment amid global uncertainties.

Inflation dynamics improved in FY 2025-26, with headline

CPI inflation moderating to 2.1% compared to 4.6% in the previous year, mainly due to deflation in food prices in

Q2 and Q3 of FY 2025-26. Core inflation showed signs of stickiness due to metal prices. The underlying inflation was weak as core inflation without gold and silver prices was extremely benign at 2.1%. The RBI maintained a neutral monetary policy stance since June 2025.

On the external front, Indias position remained manageable.

While merchandise trade balance faced headwinds from the US tariff, higher crude oil prices, weak global demand and supply disruptions, services exports, especially in

IT and business services, and remittances continued to provide strong support to the external current account. The Current Account Deficit (CAD) remained comfortable at 0.6% of GDP in FY 2025-26 aided by resilient remittances and IT-enabled services. As capital flows were insufficient to finance the CAD, the exchange rate was under pressure, particularly towards the end of the year. Foreign exchange reserves remained comfortable, providing an adequate buffer against external shocks.

Fiscal policy continued to focus on consolidation while supporting growth. The central government adhered to its medium-term fiscal consolidation path, reducing the fiscal deficit gradually while maintaining high-quality expenditure, particularly on infrastructure. Tax revenues performed well, supported by strong economic activity and improved compliance, while subsidy burdens remained contained despite volatility in global commodity prices.

Financial sector conditions remained stable in FY 2025-26, with banks maintaining healthy balance sheets. Non-performing assets of scheduled commercial banks (SCBs) declined further, and credit growth remained strong, particularly in retail and services segments. Capital adequacy ratios improved, although there was some moderation in profitability as compared to last year. Liquidity coverage ratio at 124.2% was above the regulatory requirement, although slightly lower than 132.5% a year ago. Net interest margin was under pressure (3.3% in March 2026 as compared to 3.5% in March 2025). Both return on assets and return on equity of SCBs slightly moderated. Financial markets, however, experienced intermittent volatility due to global factors, including shifts in risk sentiment and capital flows. The rupee was under pressure, primarily due to portfolio outflows and surge in crude oil prices. Indias

10-year benchmark yield remained elevated, particularly in Q4 2025-26 (around 7%). However, gap between Indias benchmark yield and the US 10-year yield narrowed in FY 2025-26. Since the US-Iran MoU, the financial market conditions have been normalising globally with its impact felt in India too.

Outlook for FY 2026-27

The outlook for FY 2026-27 is clouded by external headwinds. Although Indias GDP growth is projected lower in the range of 6.5-6.7%, India will continue to be the fastest growing major economy in the world. Domestic demand is expected to remain the primary growth driver, supported by continued public investment, gradual strengthening in private investment, and sustained consumption demand.

However, risks to the outlook persist. Key external risks include prolonged geopolitical tensions, elevated global energy prices, and tighter global financial conditions, which could impact capital flows and the external balance.

Domestically, inflation risks, particularly from food and fuel, remain a concern and could influence public policy responses. The RBI, in its June monetary policy, has projected retail Inflation higher at 5.1% in FY 2026-27. The current account deficit (CAD) is expected to widen in FY 2026-27.

Both the government and RBI have taken several steps to minimise the adverse effects of the West Asia conflict. Short-term measures by the government include, inter alia, increase in import duties on precious metals, limited pass-through of petroleum prices to consumers, temporary ban on sugar exports, credit guarantee scheme for MSME lending, waiving withholding tax and capital gain tax on investment by FIIs/BIS in G-secs, besides encouraging domestic production of pulses and oilseeds etc., through a steep hike in MSP of farm products that are imported. Medium-term initiatives by the government relate to coal gasification, oil and gas exploration involving multi-national corporations, push for electric and flex-fuel vehicles, creation of strategic oil reserves involving investment from the UAE, interest subvention scheme for production of e-buses and e-trucks, promotion of bio-refineries, and expediting FTAs with multiple countries.

The RBI has also taken several regulatory measures to relieve pressure on the rupee. Notable among them are relaxation of external commercial borrowings, providing concessional forex swap for External Commercial Borrowings (ECB) by PSUs and Overseas Foreign Currency

Borrowings by authorised dealers (ADs) till December 31,

2026, absorbing hedging cost of NRI deposits mobilised under FCNR route by ADs for three to five years up to

September 30, 2026, besides widening the scope of portfolio investments in equity and debt by overseas investors.

Policy priorities for the period ahead include maintaining macroeconomic stability while fostering inclusive growth. Continued fiscal consolidation, alongside targeted capital expenditure, will be essential. On the monetary side, the focus remains on achieving durable price stability while ensuring adequate liquidity to support growth. Structural reforms aimed at enhancing productivity, promoting manufacturing competitiveness, boosting exports, and leveraging digitalisation will be key to sustaining high growth over the medium term.

India enters 2026-27 from a position of relative strength, with solid growth fundamentals, stable macroeconomic conditions, and a resilient financial system. While external uncertainties pose challenges, the domestic growth engine remains strong, underpinning Indias status as a leading driver of global economic growth.

banking proposition designed to address the professional, business and personal banking needs of Chartered Accountants.

The offering combines the AU Royale Business Current Account, AU Royale Savings Account and AU CA Metal

Credit Card into a unified banking solution, supported by features such as zero minimum balance accounts, personalised account numbers linked to ICAI membership, preferential pricing on loans and remittances, overdraft facilities against fixed deposits, and exclusive ERP and accounting partnerships. The initiative reflects our focus on developing targeted, relationship-led propositions for key professional segments.

AU SFB & ICSI sign MoU for exclusive banking solutions for Company Secretaries

We have entered into a strategic partnership with the

Institute of Company Secretaries of India (ICSI) through a Memorandum of Understanding to deliver a specialised banking proposition for Company Secretaries (CS) across the country. The initiative aims to provide a comprehensive suite of current and savings account offerings along with a tailored credit card, designed to address the professional, business and personal financial needs of both practising and employed CS members. The offering includes features such as zero minimum balance requirements, personalised account numbers linked to ICSI membership, dedicated relationship management, doorstep banking and preferential benefits including locker discounts and travel privileges. In addition, we have committed to supporting the profession through employment and training opportunities for Company Secretaries, reinforcing a broader engagement beyond banking services. Overall, the partnership reflects our focus on building profession-specific ecosystems, combining customised financial solutions with career enablement to strengthen its presence within Indias knowledge-driven professional segments.

Credit Card partnerships

AU SFB and CheQ launch Indias first co-branded LED Credit Card

AU SFB, in partnership with CheQ, launched Indias first co-branded LED-enabled Credit Card, introducing a differentiated and design-led approach to the Credit Card experience. The card features a first-of-its-kind LED-powered tap-to-pay functionality, where an embedded light activates during contactless transactions, providing instant visual confirmation without requiring a battery.

Beyond this innovation, the proposition offers a simplified rewards ecosystem that addresses the fragmentation of traditional credit card rewards, enabling seamless accrual and redemption across spending categories. The card also incorporates dual-network functionality (Visa and RuPay), supporting both global acceptance and UPI-linked payments. Integrated credit management, seamless onboarding through the CheQ platform, and access to a curated travel and lifestyle ecosystem further enhance customer convenience.

During the year, we entered into a strategic partnership with Zaggle Prepaid Ocean Services Ltd. to launch co-branded retail credit and prepaid card programmes equipped with a unique Third-Party Application Provider

(TPAP) integration and a personalised recommendation engine. The partnership combines our banking and underwriting capabilities with Zaggles spend management platform and enterprise network to deliver enhanced payment solutions for both retail and corporate customers. In addition to the retail credit card offering, the collaboration will support the development of a commercial credit card portfolio and co-branded prepaid card programme, providing corporate customers with real-time visibility, control and insights into business spending, expense management and reimbursement tracking through Zaggles digital platform.

During FY 2025-26, we introduced a zero forex markup and zero Bank charges proposition on international remittances, addressing a key friction in cross-border transactions by eliminating hidden forex mark-ups and offering fully transparent pricing.

The offering covers outward remittances under the

Liberalised Remittance Scheme (LRS) for purposes such as overseas education, family maintenance and investments, as well as inward and outward remittances for NRI customers through AU NRE and NRO accounts. All transactions are processed at our Interbank Reference Rate (IBR), ensuring transparent pricing without hidden charges. The initiative strengthens our proposition in the

NRI and cross-border banking segment while reinforcing its commitment to simple, transparent and customer-centric banking solutions.

Complementing this, we offer FCNR(B) deposits in USD, GBP, EUR and CAD with returns of up to 7.10% per annum and NRE Fixed Deposits at up to 7.40% per annum reflecting our deepening commitment to serving the NRI banking franchise as part of its universal banking evolution.

Additionally, the recent RBI circular and operational guidelines provided a comprehensive framework for

FCNR(B) deposits, covering eligibility, interest rates, repatriation and risk management. This announcement creates an opportunity for us to strengthen our NRI deposit franchise and attract incremental foreign currency deposits.

Engagement programme with NRIs

As part of our commitment to strengthening relationships with the global NRI community, we hosted a series of marquee engagement events across key international markets during the year. These included ‘AU Rendezvous in Singapore, where the Founder, MD & CEO, Mr. Sanjay Agarwal, engaged in an open conversation with the NRI community; ‘India By The Bay in Hong Kong, featuring the acclaimed chat show ‘Excellence in Celluloid with renowned writer and lyricist Javed Akhtar; and the Jaipur Literature Festival which was held at the British Library, London, celebrating Indian culture, ideas and heritage on a global stage.

These thoughtfully curated engagements provided an opportunity to connect meaningfully with customers beyond banking relationships, fostering deeper trust, stronger affinity and long-term engagement. They also served as a platform for leadership to share the Banks strategic vision, listen to customer perspectives and strengthen its connection with the global NRI community.

The enthusiastic participation and positive response reinforced our commitment to delivering personalised experiences and building enduring relationships with

Indians across the world.

Preferential loan pricing for liability customers

One of our most tangible cross-sell propositions during the year was the introduction of relationship-linked preferential pricing on secured and unsecured loans for existing Bank account customers. Eligible customers may avail Home Loans starting at 8.25% per annum and vehicle loans starting at 7.99% per annum, with rates calibrated against competition to reflect the depth and tenure of the banking relationship. It is also designed to deepen asset-side relationships with customers who already trust us on the liability side, creating a compelling reason for customers to consolidate their banking needs with us and strengthen both sides of the balance sheet simultaneously. This is pivotal to the overall positioning of AU SFB amidst leading banking players and creates a sense of affirmative differentiation from the rest.

Bancassurance tie-up

During FY 2025-26, AU Small Finance Bank strengthened its insurance franchise through strategic bancassurance partnerships with SBI Life Insurance and Life Insurance

Corporation of India (LIC). These alliances broaden the Banks suite of protection, savings, investment and retirement offerings, enabling customers to access comprehensive life insurance solutions through our extensive physical and digital distribution network.

Leveraging the complementary strengths of both insurers, the partnerships are expected to deepen insurance penetration across urban, semi-urban and rural markets, while supporting the national vision of ‘Insurance for All by 2047. The initiatives also enhance our ability to meet customers evolving financial protection and long-term planning needs through a more comprehensive relationship-led proposition.

06 Customer service

Service Response Guarantee Program

We continually strive to deliver best-in-class customer experience, especially for the affluent customers. As part of this endeavour, we have introduced the Service

Response Guarantee Program, designed exclusively for our premium account holders, i.e AU Ivy, Eternity, and Royale customers. A defined set of service requests, when raised, are accorded priority handling and assured resolution within a 24-hour turnaround time (TAT). In the unlikely event of a delay beyond the committed TAT, we extend a complimentary voucher as a service gesture, reaffirming our promise of accountability and customer-first service. This initiative reflects our continued focus on delivering differentiated, responsive, and reliable banking experiences that match the expectations of our valued premium customers.

One Bank One Number

To address customer concerns about frequent changes in contact numbers whenever a Relationship Manager (RM) changes, we introduced One Bank One Number for both outbound and inbound communication.

Brand campaign featuring

07 Ranbir Kapoor and Rashmika Mandanna

We launched a new brand campaign centred on our core proposition, ‘Soch Badlo, aur Bank Bhi, featuring brand ambassadors Ranbir Kapoor and Rashmika Mandanna.

Through relatable storytelling, the campaign encourages customers to reassess their banking choices while highlighting our differentiated offerings across savings, business banking and digital banking. The initiative strengthens brand visibility, deepens customer engagement and reinforces our positioning as a modern, customer-centric banking franchise.

Government of India approval to 08 increase FDI limit to 74%

During FY 2025-26, we received approval from the

Department of Financial Services, Ministry of Finance, Government of India, to increase our foreign investment limit from 49% to 74%, aligning us with the broader foreign investment framework applicable to private sector banks.

The approval provides greater flexibility to access a wider pool of international capital, supporting liquidity, capital management and long-term growth requirements. The approval is subject to compliance with the prevailing FDI

Policy and the Foreign Exchange Management (Non-debt Instruments) Rules, 2019, while ensuring continued regulatory oversight. This development strengthens the Banks ability to engage with global investors and supports its evolving growth aspirations.

09 Technology initiatives

Launch of Gold Loan LOS on agentic AI platform

We have developed a deterministic, rule-driven Agentic AI platform to enable high-speed, personalised customer engagement with full end-to-end traceability and auditability. By moving beyond rigid digital workflows, the platform enhances flexibility in customer interactions while supporting efficient product delivery at scale and lower cost. As an early application, we have successfully gone live with our first AI-native Loan Origination System (LOS) for the Gold Loans business, marking a key milestone in our technology transformation. Building on this foundation, we are now scaling the Agentic AI platform across multiple lending journeys, including Mortgages, Commercial Banking, Wheels, Personal Loans and Credit Cards, with the objective of creating a more agile, consistent and intelligent origination ecosystem across businesses.

AI-Native Loan Origination System (LOS):

Successfully deployed for Gold Loans, enabling faster, more intelligent and scalable lending journeys.

Intellects Purple Fabric adopted to accelerate AU SFBs AI-first banking journey

We partnered with Intellect Design Arena to establish a scalable enterprise AI foundation through the Purple Fabric platform. The initiative supports our vision of embedding intelligence across customer journeys, operations and decision-making through domain-specific AI applications, multi-model AI capabilities and enterprise-scale data processing. We also plan to leverage AI-powered credit assessment tools to enhance decision-making, strengthen risk evaluation and improve turnaround times. This partnership represents an important step in our journey towards building a technology-led, AI-first banking franchise.

Core banking system migration of erstwhile Fincare Small Finance Bank

We successfully completed the core banking system migration of the earlier-acquired Fincare Small Finance Bank into our core banking system, marking a significant milestone in the technology transformation journey.

Executed through a controlled, single cutover approach, the migration covered all customer channels and downstream systems in one integrated move, with downtime restricted to off-peak hours to ensure minimal customer disruption. Notably, the transition was delivered ahead of schedule, supported by rigorous planning, multiple mock rehearsals and strong cross-functional governance, ensuring high data integrity and operational stability at go-live.

Onboarding platform ACE

During the year, we rolled out an improved onboarding platform, ACE, for onboarding of Savings and Current Account customers. The new platform for assisted onboarding comes with predictive risk-based models that deter mule account opening, it also gives customers the option to get onboarded at time of account opening with bundled investment, fixed deposit and insurance product at the time of account opening. We have also built assisted onboarding journeys for minors and joint account holders. The new journey ensures faster TAT, immediate account opening and reduces overhead cost of scrutiny.

AU SFB website relaunch

The redesigned AU SFB website adopts a mobile-first, modular design with intuitive navigation and smart search capabilities, enhanced by multilingual support (11 Indian languages), improving accessibility, customer engagement and seamless discovery of products and services.

Financial Performance Review

Our performance in FY 2025-26 demonstrates broad-based strengthening across key financial indicators, with expansion in the balance sheet, improved profitability and a reduction in provisioning, both on an absolute and Y-o-Y basis. The year was marked by robust growth in deposits and advances, supported by higher earnings and continued scale-up of the distribution network.

Balance Sheet

(in Crore)

	March 31, 2026	March 31, 2025	Y-o-Y
LIABILITIES
Shareholders Funds	19,974	17,166	16%
Deposits	1,52,661	1,24,269	23%
Borrowings	13,872	11,660	19%
Other Liabilities and Provisions	5,291	4,751	11%
Total Liabilities	1,91,797	1,57,846	22%
ASSETS
Cash and Balances with Bank and RBI	8,523	9,466	-10%
Investments	44,794	37,848	18%
Advances	1,34,276	1,07,092	25%
Fixed Assets	1,436	912	57%
Other Assets	2,768	2,527	10%
Total Assets	1,91,797	1,57,846	22%
Securitised/assigned portfolio/IBPC	4,286	6,926	-38%

Deposits

Our deposit base grew by 23% Y-o-Y to 1,52,661 Crore as on March 31, 2026, while CASA ratio stood at 28%, reflecting a granular and stable liability profile. Stable deposits (comprising CASA, retail term deposits and non-callable bulk term deposits) accounted for 79% of total deposits, showing our continued emphasis on quality over scale. Our cost of funds declined by 32 basis points to 6.75% Y-o-Y in FY 2025-26, from 7.07% in FY 2024-25.

(in Crore)

	March 31, 2026	March 31, 2025	Y-o-Y
Current Account (CA)	9,359	6,997	34%
Savings Account (SA)	33,998	29,256	16%
CASA	43,357	36,253	20%
Term Deposit (TD)	1,03,236	83,186	24%
Certificate of Deposit (CD)	6,067	4,829	26%
Total Deposits	1,52,661	1,24,269	23%
CASA %	28%	29%	NA.
Stable Ratio %	79%	78%	NA.

Advances

Gross Loan Portfolio stood at 1,40,327 Crore, registering growth of 21% Y-o-Y. Growth remained broad-based, with our secured businesses comprising Retail and Commercial Banking growing 23% Y-o-Y. The unsecured portfolio, comprising Microfinance, Credit Cards and Personal Loans, was marginally lower by 1% compared to the previous year. Within Retail Assets, we recorded robust growth led by Wheels (27%), Gold Loans (108%). Commercial Banking business grew by 29% Y-o-Y, delivering a strong performance across all its key business lines. We are building our MFI and Credit Card businesses through a calibrated strategy that balances growth with portfolio quality.

(in Crore)

	March 31, 2026	March 31, 2025	Y-o-Y
Retail Secured Assets	92,742	76,616	21%
Wheels	46,363	36,623	27%
Mortgages	42,438	38,097	11%
- MBL	34,691	30,676	13%
- HL	7,748	7,421	4%
Gold Loan	3,941	1,896	108%
Commercial Banking	30,968	23,952	29%
Business Banking	17,641	15,398	15%
Renewables	2,603	1,197	118%
EE&FI	5,713	4,145	38%
REG	5,011	3,212	56%
Inclusive Banking	7,150	6,937	3%
MFI	6,879	6,670	3%
FPO & SMF	271	267	2%
Digital Unsecured	2,949	3,290	-10%
Credit Card	2,196	2,464	-11%
Personal Loans	753	826	-9%
Other & SME	6,518	4,909	33%
Total	1,40,327	1,15,704	21%

Note: Agri banking portfolio integrated into the Business Banking vertical; Renewable Energy segment carved out as a separate business unit

As on March 31, 2026 ~68% of the portfolio is fixed rate, ~4% of the loans are flexi rate, most of which is currently in fixed interest period.

Asset Quality Performance

Through our growth journey, we have remained anchored in prudent underwriting standards, disciplined collection practices and a robust risk management framework. Our asset classification process is fully system-driven, with NPAs identified on a daily basis through automated controls that have been tested and audit-validated for accuracy and reliability. Gross NPA and Net NPA stood at 2.03% and 0.74% respectively, as on March 31, 2026, as compared to 2.28% and 0.74%, respectively, as on March 31, 2025 showing significant improvement.

Provisioning and Contingency

(in Crore)

	Loan Amount	Provisions	Coverage (%)
GNPA	2,756	1,725	63
COVID-related restructuring (Standard)	231	38	16
Contingency provisions		38
Floating provisions		41
Stressed and contingencies provisions	2,987	1,842
Provisions towards Standard Assets		457
Total provisions		2,299
Provisions as a % of gross advances		1.69%

Profit & Loss Statement

(in Crore)

Particulars	FY 2025-26	FY 2024-25	Y-o-Y
INCOME
Interest Earned	18,636	16,064	16%
Interest Expended	9,524	8,052	18%
Net Interest Income	9,113	8,012	14%
Other Income	2,978	2,526	18%
Net Total Income	12,091	10,538	15%
EXPENSES
Employee Cost	3,828	3,148	22%
Other Operating Expenses	3,154	2,809	12%
Operating Expenses	6,982	5,957	17%
PPoP	5,109	4,581	12%
Provisions	1,615	1,793	-10%
Profit Before Tax	3,494	2,788	25%
Tax Expenses	838	682	23%
Profit After Tax before Exceptional Items	2,656	2,106	26%
Exceptional Items*	15	NA.	NA.
Profit After Tax (Reported)	2,641	2,106	25%

Note: Exceptional Items include 20 Crore (pre-tax) provisioning arising from the implementation of the New Labour Code

Net Interest Income

During FY 2025-26, the interest rate environment was heading downwards with RBI cutting benchmark repo rate by 125 bps between February 2025 and March 2026. This resulted in a decline in yields on ~28% of the variable-rate loan book as most of this book was linked to the repo rate. Additionally, there was also a shift in asset mix with a degrowth in the high-yield unsecured book. Together, this led to moderation in loan yields of ~50 bps to 13.9% in FY 2025-26 as compared to 14.4% in FY 2024-25.

Lower yields on loans were partially offset by a reduction in term deposit rates. Timely deposit rate reductions helped lower the average cost of funds by 32 basis points to

6.75% in FY 2025-26, as compared with 7.07% in the previous year.

Consequently, Net Interest Margin (NIM) for FY 2025-26 stood at 5.65% as against 5.94% in FY 2024-25.

While margins moderated due to repricing of assets, we continued to benefit from strong balance sheet growth and as a result, NII increased by 14% Y-o-Y to 9,113 Crore in FY 2025-26, as compared with 8,012 Crore in FY 2024-25.

Other Income

Our total other income increased by 18% Y-o-Y to 2,978 Crore in FY 2025-26, supported by broad-based growth across fee and treasury streams. General Banking and cross-sell related fees grew strongly by 25% to 871 Crore. Transaction Banking and Forex income also witnessed healthy momentum, rising 47% to 149 Crore, albeit on a low base. Reflecting the declining interest rate environment, income from Treasury operations recorded robust growth of 65% to 389 Crore, contributing meaningfully to overall non-interest income. While Credit Card income remained subdued during FY 2025-26, a revival in credit card growth is expected to elevate the credit card fees going forward.

As a result, other income improved to 33% of Net Interest Income, reflecting continued diversification of our revenue mix and strengthening of fee-based income streams.

(in Crore)

Particulars	FY 2025-26	FY 2024-25	Y-o-Y
Loan Assets Processing & Other Fees	1,299	1,126	15%
General Banking, Cross-Sell & Deposits-related fees	871	696	25%
Credit Cards	263	351	-25%
Transaction Banking & Forex Income	149	101	47%
Miscellaneous	7	17	-60%
Core Other Income	2,589	2,291	13%
Income from Treasury Operations	389	235	65%
Total Other Income	2,978	2,526	18%
Other Income as % of Net Interest Income	33%	32%	NA.

Operational Expenses

Our employee strength increased by 16%, from 50,946 in FY 2024-25 to 59,207 in FY 2025-26, in line with continued distribution expansion. During the year, we also maintained our strategic focus on technology investments and AI-led initiatives. Additionally, we launched a new brand campaign,

‘Soch Badlo, aur Bank Bhi, onboarding Ranbir Kapoor and Rashmika Mandanna as brand ambassadors.

Despite these ongoing investments in people, technology, and brand building, operating expenses remained well-controlled. Total operating expenses including New Labour code impact of 20 Crore grew by 18% Y-o-Y to 7,002 Crore in FY 2025-26, compared to 5,957 Crore in FY 2024-25. This disciplined growth was supported by multiple initiatives aimed at driving efficiency and productivity, including Agentic AI-led process re-engineering and automation, organisational realignment, and an expanded span of control.

As a result, we achieved an improvement in key efficiency metrics. The Cost-to-Assets ratio excluding CGFMU premium declined by 19 bps to 4.1% in FY 2025-26 from 4.3% in FY 2024-25.

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Provisioning Expenses

Our provisioning expenses declined by 10% Y-o-Y to 1,615 Crore in FY 2025-26 from 1,793 Crore in FY 2024-25 driven by improvement in unsecured business of MFI and Credit Cards and broadly stable asset quality in secured assets. Credit cost on average total assets improved to

1.0% for FY 2025-26 from 1.3% for FY 2024-25. PCR, ex of technical write-off, stood at ~64% as on March 31, 2026 and including technical write-off at 85%.

Profitability

Pre-Provisioning Operating Profit (PPoP) including New Labour code impact of 20 Crore increased by 11% Y-o-Y, reaching 5,089 Crore in FY 2025-26 as against 4,581 Crore in FY 2024-25. We maintained healthy profitability metrics in FY 2025-26. Profit After Tax (PAT) grew by 25% Y-o-Y to 2,641 Crore in FY 2025-26 from 2,106 Crore in FY 2024-25. Return on Assets (RoA) and Return on Equity (RoE) stood at 1.6% and 14.2% respectively for FY 2025-26 vs 1.5% and 13.1% respectively for FY 2024-25.

RoA Tree (in %)	FY 2025-26	FY 2024-25
Net Interest Income	5.4	5.8
Other Income	1.8	1.8
Operating Expense	4.2	4.3
Pre-Provision Operating Profit (PPoP)	3.0	3.3
Provision and Contingency	1.0	1.3
Return on Assets (RoA)	1.6	1.5
Return on Equity (RoE)	14.2	13.1

Earnings and Book Value

	FY 2025-26	FY 2024-25	Growth
Earnings per Share (EPS)	35	28	25%
Book Value per Share (BVPS)	267	231	16%

Earnings per share increased by 25% Y-o-Y to 35 per fully paid-up equity share whereas the book value of each fully paid-up equity share improved from 231 per share as on FY 2024-25 to 267 as on FY 2025-26, an increase of 16% Y-o-Y.

Distribution

We have structurally expanded our physical and digital distribution footprint, reinforcing our transition into a well-diversified pan-India banking franchise.

As part of our network optimisation strategy, we have converted select asset centres into full-service branches and added new banking outlets. During the year, we added 334 net touchpoints, including 78 new liability branches, with a strategic focus on urban markets to further strengthen our deposit franchise and improve liability granularity. In FY 2025-26, excluding banking outlets/business correspondents/unbanked branches, the urban branch network was 504 and the Swadesh branch network was 199.

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Priority Sector Lending

Priority Sector Lending (PSL) continues to play a pivotal role in expanding access to formal credit across underserved segments of the economy. Despite significant progress in financial inclusion, certain sections particularly micro enterprises, small farmers and informal businesses —continue to face gaps in timely and affordable institutional finance. In this context, PSL acts as a key enabler for channelising credit towards sectors critical for inclusive growth, including agriculture, MSMEs, housing, education and weaker sections.

RBI has mandated a revised PSL target for Small Finance Banks (SFBs) at 60% of Adjusted Net Bank Credit effective FY 2025-26, as compared to the earlier threshold of 75%. This recalibration provides greater flexibility for portfolio diversification while continuing to ensure adequate credit flow to priority segments.

PSL remains integral to our core purpose of enabling financial inclusion and supporting underserved communities, rather than being viewed solely as a regulatory obligation. We have consistently maintained a strong PSL performance, remaining comfortably above the revised regulatory threshold during FY 2025-26, supported by a well-diversified portfolio across key segments.

We continue to play a catalytic role in supporting entrepreneurship, improving livelihood opportunities, and fostering financial resilience among micro entrepreneurs, self-employed individuals, and rural households.

Going forward, we will continue to expand our PSL franchise through a calibrated approach that balances growth, risk, and impact, while contributing meaningfully to the broader objectives of inclusive and sustainable economic development.

Loan Portfolio

Gross loan portfolio grew 21% Y-o-Y to 1,40,327 Crore as of March 31, 2026. Secured businesses comprising Retail Secured Assets and Commercial Banking grew at 23% Y-o-Y, outpacing estimated system credit growth of approximately 13%.

(in Crore)

	March 31, 2026			March 31, 2025			Y-o-Y
	Gross Loan	GA Yield1	Gross	Gross Loan	GA Yield1	Gross	GLP
	Portfolio	(%)	NPA2 (%)	Portfolio	(%)	NPA2 (%)	Growth
Retail Secured
	92,742	14.2	2.4	76,616	14.5	2.5	21.0%
Assets
Commercial Banking	30,968	10.4	0.8	23,952	11.1	0.8	29.3%
Inclusive Banking	7,150	25.2	3.8	6,937	25.1	4.4	3.1%
Digital Unsecured	2,949	14.2	4.2	3,290	17.1	6.9	-10.4%
Others & SME	6,518	8.0	0.3	4,909	8.3	0.4	32.8%
Total	1,40,327	13.8	2.03	1,15,704	14.4	2.28	21.3%

Retail Secured Businesses

The retail secured businesses mainly comprise of Wheels, Microbusiness Loans, Home Loans, and Gold Loans. As of March 31, 2026, the retail secured businesses portfolio grew by 21% Y-o-Y to 92,742 Crore; in the last six years, this book has grown at a CAGR of 24%+.

The retail secured asset franchise is underpinned by deep distribution reach and strong underwriting capabilities in granular lending, particularly across informal, semi-urban and rural segments, enabling effective customer acquisition and risk assessment. This is complemented by a robust operating model and disciplined collections framework, ensuring consistency in credit performance and portfolio quality across cycles.

We also benefit from stable, vintaged and experienced leadership across businesses and geographies, providing continuity in strategy and execution, and supporting sustained, risk-calibrated growth.

01 Wheels

The Wheels business has been our flagship franchise since inception in 1996 and continues to be the largest contributor within the retail secured portfolio, with the portfolio growing 27% Y-o-Y to 46,363 Crore as of

March 31, 2026. The business is anchored in financing income-generating assets across rural and semi-urban markets, catering to customers engaged in transportation, agriculture and small business activities.

The portfolio spans a diversified set of segments including personal vehicles, commercial vehicles (across SCVs, LCVs, M&HCVs, three-wheelers and construction equipment) and tractors, enabling participation across multiple use-cases while maintaining a balanced product mix. The customer base primarily comprises small and marginal farmers, self-employed individuals, MSMEs and transport operators, many of whom operate with limited formal income documentation.

A key strength of the franchise lies in its underwriting framework, which combines detailed field-level assessment with household cash flow analysis and business activity evaluation, supplemented by bureau data where available. This enables us to serve both formal and informal customer segments while maintaining strong credit discipline. Loans are structured against productive assets, with repayment capacity closely linked to asset utilisation and income generation.

The business is supported by a granular distribution network built on deep local presence and relationship-led sourcing, enabling high-quality origination, strong customer engagement and effective collections.

Portfolio construction remains diversified across geographies, customer segments and asset classes, with a calibrated mix of new vehicles, used vehicles and refinance exposures to manage cyclicality and ensure resilience across economic cycles.

Distribution expansion remained the primary initiative during FY 2025-26, with touchpoints nearly doubling over the last two years to around 1,000 locations. At the same time, the origination workflow has been fully migrated to

Salesforce-based Loan Origination Systems and a FICO-driven Business Rule Engine, enabling end-to-end straight-through processing and improved underwriting consistency. AI-enabled enhancements are currently being developed to further reduce turnaround times and strengthen decisioning frameworks.

Progressing with industry trends, we have also introduced electric vehicle financing during the year, expanding its presence in emerging segments. Overall, the Wheels business continues to scale with a focus on disciplined underwriting, granular portfolio build-up and stable asset quality, supported by strong operating controls and continuous monitoring.

Going forward, this business will continue to deepen rural distribution while extending reach into South and East

India markets, leveraging the geographic footprint gained through the erstwhile Fincare integration. Volume growth remains the primary objective, with active management of the product and customer mix to sustain yields and portfolio quality. The AI origination journey underway is anticipated to improve sourcing efficiency and reduce per-loan operating costs.

Bancassurance

We continued to strengthen our digital-first approach in delivering insurance solutions to customers. The

Bancassurance business delivered strong growth in FY 2025-26, supported by improved product mix, ticket sizes, and focused execution. On the technology front, our proprietary AU BIMA platform and AU 0101 App have strengthened the insurance journey, enabling access to transparent, compliant, and personalised solutions. Digital capabilities such as lead management, compare-and-buy journeys, product suitability frameworks, campaign management, and dialler integration have enhanced distribution efficiency and customer engagement, supporting scale with strong governance and compliance standards.

With 15 strategic insurance partnerships, we offer a comprehensive suite spanning Life, Health, Motor, SME, Wellness, and Cyber Insurance. The total number of policies grew by 24% Y-o-Y from 36+ Lakh in FY 2024-25 to 45+ Lakh in FY 2025-26, with premium mobilisation increasing by 63% Y-o-Y from 1,100+ Crore in FY 2024-25 to 1,800+ Crore in FY 2025-26 reflecting higher volumes and enhanced ticket sizes.

As awareness around protection and financial security continues to increase, Bancassurance will remain an important contributor to fee-income diversification, customer engagement and long-term franchise strength.

Human Resources

At AU SFB, people are the cornerstone of our growth and transformation journey. We are committed to creating a workplace that empowers employees to excel, innovate, and build meaningful careers while remaining aligned with our strategic priorities. As of March 31, 2026, our total workforce was 59,207 across the country. Our focus remains on attracting, developing, and retaining talent through continuous learning, leadership development, career mobility, and future-ready skill enhancement. We continue to invest in building an agile workforce equipped to succeed in an evolving banking and technology-driven environment.