AU SFB shares: Why RBI's universal bank licence is a rerating catalyst; target prices
AU SFB share price: Despite a rally of 21.4 per cent in its stock price since 4QFY25 results, Nirmal Bang remained positive on AU SFB shares. It values the stock at 3 times June 2027E adjusted book value.
- Aug 8, 2025,
- Updated Aug 8, 2025 9:18 AM IST
AU Small Finance Bank (AU SFB) receiving the Reserve Bank of India's in-principle approval for its transition into a universal bank is a significant milestone, as the license enhances its brand positioning and is expected to help narrow the gap in deposit rates that AU SFB offers against peers, thereby reducing the cost of funds and improving CASA mobilisation over time.
"Despite a rally of 21.4 per cent in its stock price since 4QFY25 results, we remain positive on AU SFB shares. Valuing AU SFB at 3 times June-27E ABV, we maintain our target price at Rs 916. In our view, the stock should command a premium similar to large private sector banks," Nirmal Bang Institutional Equities said while suggesting a 'Buy' on the stock.
As against its earlier expectations of 9.5 per cent credit growth in FY26, Nirmal Bang now estimates AU SFB’s loan book to grow 19.8 per cent during the same time. Nirmal Bang is positive on AU SFB's transition ahead to a universal bank and sees reduction in unsecured loan stress and normalization of credit costs in H2FY26.
The RBI approval follows the revised guidelines in April 2024, which established a voluntary transition framework for eligible SFBs that meet capital norms, demonstrate five years of consistent operational performance, and successfully meet RBI's due diligence criteria.
"Having started operations in 2017, AU SFB became the first SFB to formally apply under this route. This transition underscores the regulator’s confidence in AU’s governance, execution track record, and institutional maturity," MOFSL said.
The licence removes limitations on loan ticket sizes and borrower exposure, opening new avenues of growth. MOFSL said the bank does not consider this a near-term focus area. In the medium term, the transition will enable AU SFB to scale up its presence in larger-ticket retail, SME, and mid-corporate segments, thereby enhancing portfolio diversification and boosting capital efficiency, MOFSL said.
"Reiterate Buy with a target of Rs 875; the RBI approval serves as a strong re-rating catalyst, improving growth visibility and investor appeal. Earnings recovery in earnings over 2H as credit cost subsides along with industry leading loan growth, a potential capital raise to support robust growth, and the RBI’s approval of CEO’s (Sanjay Agarwal) term renewal—due in Apr’26—are additional near-term catalysts that reinforce confidence in the bank’s operational capabilities and long-term growth outlook," MOFSL said.
AU Small Finance Bank (AU SFB) receiving the Reserve Bank of India's in-principle approval for its transition into a universal bank is a significant milestone, as the license enhances its brand positioning and is expected to help narrow the gap in deposit rates that AU SFB offers against peers, thereby reducing the cost of funds and improving CASA mobilisation over time.
"Despite a rally of 21.4 per cent in its stock price since 4QFY25 results, we remain positive on AU SFB shares. Valuing AU SFB at 3 times June-27E ABV, we maintain our target price at Rs 916. In our view, the stock should command a premium similar to large private sector banks," Nirmal Bang Institutional Equities said while suggesting a 'Buy' on the stock.
As against its earlier expectations of 9.5 per cent credit growth in FY26, Nirmal Bang now estimates AU SFB’s loan book to grow 19.8 per cent during the same time. Nirmal Bang is positive on AU SFB's transition ahead to a universal bank and sees reduction in unsecured loan stress and normalization of credit costs in H2FY26.
The RBI approval follows the revised guidelines in April 2024, which established a voluntary transition framework for eligible SFBs that meet capital norms, demonstrate five years of consistent operational performance, and successfully meet RBI's due diligence criteria.
"Having started operations in 2017, AU SFB became the first SFB to formally apply under this route. This transition underscores the regulator’s confidence in AU’s governance, execution track record, and institutional maturity," MOFSL said.
The licence removes limitations on loan ticket sizes and borrower exposure, opening new avenues of growth. MOFSL said the bank does not consider this a near-term focus area. In the medium term, the transition will enable AU SFB to scale up its presence in larger-ticket retail, SME, and mid-corporate segments, thereby enhancing portfolio diversification and boosting capital efficiency, MOFSL said.
"Reiterate Buy with a target of Rs 875; the RBI approval serves as a strong re-rating catalyst, improving growth visibility and investor appeal. Earnings recovery in earnings over 2H as credit cost subsides along with industry leading loan growth, a potential capital raise to support robust growth, and the RBI’s approval of CEO’s (Sanjay Agarwal) term renewal—due in Apr’26—are additional near-term catalysts that reinforce confidence in the bank’s operational capabilities and long-term growth outlook," MOFSL said.