AU Small Finance Bank shares rise 8% at open as RBI nods universal bank transition

Shares of AU Small Finance Bank jumped nearly 8 per cent at open on Friday after the private lender received an in-principle approval from RBI for transition from a Small Finance Bank to Universal Bank on Thursday, August 07. With this approval, AU Bank becomes the first small finance bank to receive an in-principle approval to become a universal bank.

"It affirms AU Bank’s evolution into a complete Bank, one that offers a full spectrum of banking products and services that today’s customer expects, spanning retail, business, and digital solutions," said AU Small Finance Bank in an exchange filing with the bourses on Thursday.

However, the stock which opened at Rs 800 on Friday, was seen at Rs 765.30 as of 9.20 am, rising 2.86 per cent for the day. The profit booking at opening dragged the stock lower. Total market capitulation of AU Small Finance Bank stood close to Rs 57,000 crore. The stock is down 10 per cent from its 52-week high at Rs 840.95, hit in July 2025.

Market experts note that the license of universal bank enhances AU Small Finance Bank's 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.

The RBI approval serves as a strong re-rating catalyst. The license removes limitations on loan ticket sizes and borrower exposure, opening new avenues of growth. However, it does not consider this a near-term focus area, they add.

Goldman Sachs believes that while the license secures strategic optionality for AU Small Finance Bank, the long-term payoff will hinge on execution. "Believe this development is likely to be viewed positively as it enables AU to tap into an expanded customer set as first," the brokerage said.  It has a 'buy' rating on the lender with a price target of Rs 979, suggesting a 30 per cent upside.

This will enable AU Bank to scale up its presence in larger ticket retail, SME, and mid-corporate segments, enhancing portfolio diversification and boosting capital efficiency in the medium term, said Motilal Oswal Financial Services. The approval improves growth visibility and investor appeal, it notes.

"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 are additional near-term catalysts that reinforce confidence in the bank’s operational capabilities and long-term growth outlook," Motilal Oswal added with a 'buy' rating and a target price of Rs 875.

We have estimated earnings CAGR of 31.7 per cent over FY25-FY27E based on assumptions of 19.5 per cent loan CAGR, average NIM of 5.6 per cent (calculated), average cost-to-income ratio of 55.6 per cent, and average credit cost at 1.5 per cent of average loans during the same period. This is expected to result in RoA of 1.8 per cent  in FY27E, said Nirmal Bang Institutional Equities.

"Despite a rally of 21.4% in its stock price since 4QFY25 results, we remain positive on AU SFB. Valuing AU SFB at 3x 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," it added, maintaining a 'buy' rating on the stock.