Credit Rating

Ref. No.: AUSFB/SEC/2026-27/253 Date: October 1, 2026 National Stock Exchange of India Ltd. BSE Limited Exchange Plaza, C-1, Block G, Phiroze Jeejeebhoy Towers, Bandra Kurla Complex, Dalal Street, Bandra (East), Mumbai 400051, Mumbai 400001, Maharashtra. Maharashtra. NSE Symbol: AUBANK BSE Scrip Code: 540611, 976580, 975038, 974914, 974963, 975017 Dear Sir/Madam, Sub: Credit Rating We wish to inform that ICRA Ratings has re-affirmed [ICRA] AA rating and revised the outlook from Stable to Positive on Long-Term Debt Instruments (Tier-II Bonds) of the Bank: INE949L08459, INE519Q08194, INE519Q08160, INE519Q08178 and INE519Q08186. Further, rating of [ICRA] AA (Outlook: Positive) has been assigned to the Infrastructure Bonds. Rating Rationale in this regard is enclosed herewith. This is for your information and records. Thanking You, Yours faithfully, For AU SMALL FINANCE BANK LIMITED Manmohan Parnami Company Secretary and Compliance Officer Membership No.: F9999 Encl.: As above investorrelations@aubank.in October 01, 2026 AU Small Finance Bank Limited: Rating reaffirmed and outlook revised to Positive from Stable; rating assigned to Rs. 100-crore infrastructure bonds Summary of rating action Previous rated Current rated Financial sector Instrument* amount amount Rating action regulator# (Rs. crore) (Rs. crore) Basel II Lower Tier II [ICRA]AA (Positive); reaffirmed and 1,004.00 1,004.00 SEBI bonds outlook revised to Positive from Stable Infrastructure bonds - 100.00 [ICRA]AA (Positive); assigned SEBI Total 1,004.00 1,104.00 *Instrument details are provided in Annexure I # SEBI’s grievance redressal/dispute resolution and SEBI investor protection mechanisms such as SCORES and ODR shall not be available for activities and instruments which fall under the regulatory purview of Financial Sector Regulators other than SEBI Rationale The rating action factors in AU Small Finance Bank Limited’s (AUSFB) improving scale and established retail asset franchise, along with a track record of maintaining a prudent financial risk profile, supported by adequate capitalisation and healthy earnings trajectory. The bank’s credit profile is further supported by its predominantly secured retail loan book, track record across key lending segments, and improving asset quality indicators. The bank reported a compounded annual growth rate of around 30% in its gross loan portfolio (GLP) between March 2021 and March 2026 (GLP stood at Rs. 1,44,250 crore as on June 30, 2026), while deposits increased by 34% during this period. It has experience of nearly three decades in the vehicle finance segment and two decades in the micro, small and medium enterprise (MSME) segment. The share of secured retail loans stood at 67% of the bank’s GLP as on June 30, 2026. Further, in-principle approval received from the Reserve Bank of India (RBI) for AUSFB’s transition into a universal bank is expected to strengthen its competitive positioning and support the continued diversification of its franchise. The transition is expected to be completed in FY2027. ICRA expects AUSFB to maintain its growth momentum and scale up its GLP by 20-25% per annum over the medium term with a continued focus on the current target borrower segments. While AUSFB’s reported gross non-performing assets (NPA) increased in FY2025, primarily due to stress in the microfinance and digital unsecured businesses, its asset quality has gradually improved with gross NPAs declining to 2.1% as on June 30, 2026 (net NPA of 0.8%) from 2.5% as on June 30, 2025 (net NPA of 0.9%; 1.8% and 0.6%, respectively, as of June 2024). Further, ~96% of the bank’s microfinance (MFI) portfolio is covered under the Credit Guarantee Fund for Micro Units (CGFMU), which is likely to help contain the credit costs in this segment. ICRA notes that the bank has also been gradually expanding its product offerings over the years, adding new products like gold loans, home loans, renewable energy loans, personal loans, credit cards and business banking etc. AUSFB’s ability to maintain asset quality as it grows in these segments remains monitorable. As on June 30, 2026, AUSFB’s reported capital adequacy ratio (CAR) of 18.9% (Tier I: 17.1%) was well above the regulatory requirement of 15.0% (Tier I: 7.5%). In ICRA’s opinion, the bank is adequately capitalised at present and is expected to maintain adequate capital buffers even after its transition to a universal bank. AUSFB would, however, have to raise capital over the medium term in view of its growth plans. Its earnings profile remains healthy with return on assets (RoA) at 1.6%1 (annualised) in Q1 FY2027 (1.5%1 in FY2026 as well as in FY2025). While ICRA expects credit costs to remain slightly elevated in FY2027, the 1 As per ICRA’s calculations www.icra .in Sensitivity Label : Public Page | 1 Public Public Page | 1 bank should be able to maintain its earnings profile, supported by healthy margins and gradually improving operating efficiency. ICRA notes the healthy traction in deposit mobilisation by the bank over the years. Nevertheless, the share of current account and savings account (CASA) remained relatively moderate at 29% as on June 30, 2026 (against 33% as on March 31, 2024). Also, the share of bulk deposits2 was relatively high at 42% as on June 30, 2026 (against 43% as on March 31, 2026). The Positive outlook on the long-term rating reflects ICRA's opinion that AUSFB would continue to scale up its operations while maintaining a healthy profitability and a prudent capitalisation profile. Key rating drivers and their description Credit strengths Established retail asset franchise with track record of comfortable asset quality – AUSFB operates in the retail asset segments and has experience of nearly three decades in vehicle financing and two decades in MSME financing. It has gradually expanded its product offerings over the years and has added new products like gold loans, home loans, renewable energy loans, personal loans, consumer durables loans etc. Further, the bank has received in-principle approval from the RBI for its transition into a universal bank. ICRA notes that AUSFB aims to complete this transition in FY2027. Nonetheless, the bank’s focus will remain on secured retail assets, which comprised 67% of the GLP as on June 30, 2026. Vehicle financing and mortgage-backed micro business loans continue to dominate the retail asset portfolio, accounting for 34% and 25%, respectively, of the GLP as of June 2026. ICRA expects these segments to continue to dominate the retails asset portfolio as the bank scales up its GLP by 20-25% per annum over the medium term. While reported gross NPAs had increased in FY2025, primarily on account of stress in the microfinance and digital unsecured businesses, asset quality has gradually improved with gross NPAs declining to 2.1% as on June 30, 2026 (net NPAs of 0.8%) from 2.5% as on June 30, 2025 (net NPAs of 0.9%; 1.8% and 0.6%, respectively, as of June 2024). Further, ~96% of the bank’s MFI portfolio is covered under CGFMU, which is likely to help containthe credit costs in this segment. Nonetheless, the bank’s ability to maintain asset quality as it scales up the relatively newer segments remains monitorable. Adequate capitalisation profile – The bank’s CAR of 18.9% (Tier I: 17.1%), as on June 30, 2026, was well above the regulatory requirement of 15.0% (Tier I: 7.5%). Also, ICRA draws comfort from AUSFB’s track record of capital raising. The bank last raised ~Rs. 2,000 crore of equity capital in FY2023 through a qualified institutional placement, which helped it maintain a prudent capitalisation profile while scaling up its portfolio. Post AUSFB’s transition to a universal bank, the CAR requirement would be lower, but it would have to provide for operational and market risks as per Basel III requirements. In ICRA’s opinion, AUSFB would be adequately capitalised even after its transition to a universal bank. It would, however, have to raise capital over the m [Showing first 8,000 characters — download PDF for full document]