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This stock is Motilal Oswal's top mid-sized private banking pick; check upside potentialGrowth momentum remains among the strongest in the industry, driven by a high-yielding asset mix and steady business traction, Motilal Oswal said, adding that it remains constructive on AU Small Finance Bank's underlying growth trajectory.By Meghna Sen  April 28, 2026, 6:48:16 AM IST (Published)2 Min ReadShares of AU Small Finance Bank Ltd. will be in focus on Tuesday, April 28, after the lender reported a strong Q4FY26 performance, ahead of expectations, led by margin expansion, lower credit costs and improving asset quality.

The bank continues to be a top pick among mid-sized private lenders for brokerage firm Motilal Oswal, which has reiterated its 'buy' rating with a price target of ₹1,275, implying a potential upside of 22% from current levels.

According to the brokerage, AU Bank delivered a robust quarter, supported by healthy growth, a 24 basis points sequential expansion in net interest margins (NIM), and a sharp decline in credit costs.

Margin expansion was aided by a lower cost of funds, an improved asset mix, favourable day-count impact, lower interest reversals and partial benefit from tax reversals.

Growth momentum remains among the strongest in the industry, driven by a high-yielding asset mix and steady business traction, Motilal Oswal said, adding that it remains constructive on the bank's underlying growth trajectory.

The brokerage expects operating expenses to moderate, with the cost-to-income ratio likely to decline to 56-57% over FY27-28E.

Asset quality trends remain encouraging, with stress levels easing and improvement visible in the unsecured portfolio.

With stable margins, normalising credit costs and sustained growth, the brokerage expects AU Bank to deliver best-in-class earnings growth over the medium term. It has largely retained its estimates and expects a PAT CAGR of 35% over FY27-28.

For Q4FY26, AU Small Finance Bank reported a 65% year-on-year and 25% sequential rise in profit after tax at ₹832 crore. For the full year FY26, PAT grew 25% to ₹2,641 crore.

Net interest income (NII) rose 23% year-on-year and 10% quarter-on-quarter to ₹2,582 crore, supported by loan growth and margin expansion. NIM improved to 5.96%, up 24 basis points sequentially.

Deposits grew 23% year-on-year and 10% sequentially to ₹1.52 lakh crore.

Asset quality improved, with gross NPAs declining to 2.03% and net NPAs to 0.74%. Slippages fell 17% quarter-on-quarter to ₹659 crore, indicating improving collection efficiency.

Credit costs declined sharply to 0.6% in Q4, while FY26 credit cost stood at 1.0%.

Profitability metrics also strengthened, with return on assets (RoA) at 1.8% and return on equity (RoE) at 17.0% for the quarter.

The bank also made progress on its transition towards a universal bank, alongside investments in AI platforms, core banking system integration and distribution expansion.

Shares of AU Small Finance Bank ended 2.36% lower on Monday at ₹1,040.50, though the stock has gained over 23% in the past month.Continue ReadingNote To ReadersDisclaimer: The views and investment tips expressed by investment experts on CNBCTV18.com are their own and not that of the website or its management. CNBCTV18.com advises users to check with certified experts before taking any investment decisions.TagsAU Small Finance BankAU Small Finance Bank share price