RBI Eases Lending Norms For Small Finance Banks: SEBI RA Says AU Bank Positioned For Further Upside

AU Small Finance Bank’s strong asset quality, rising profitability, and bullish technical setup may attract investor interest as lending rules ease.

The Reserve Bank of India (RBI) on Friday relaxed the priority sector lending (PSL) norms for small finance banks (SFBs) by lowering the quantum of PSL advances from 75% to 60% of their total credit beginning FY26. 

However, the Reserve Bank has clarified that 40% of adjusted net bank credit (ANBC) or credit equivalent amount of off-balance sheet exposure (CEOBE), whichever is higher, must be disbursed to the specified PSL sub-sectors. 

The remaining 20% can be disbursed to PSL areas where the bank has a comparative advantage.

SEBI-registered analyst Deepak Pal said AU Small Finance Bank, the largest small finance bank in India, remains in a strong position, fundamentally and technically. 

He noted the bank reported revenue of over ₹11,200 crore and a net profit of approximately ₹1,450 crore in FY24. 

AU Bank maintains a net interest margin of around 5.9%, gross NPA of 1.6%, and net NPA of 0.4%. 

The bank’s current account and savings account (CASA) ratio is about 36%, capital adequacy is 22%, and its diversified loan book is over ₹65,000 crore. Return on equity (ROE) is near 13.5%.

Pal cited AU Bank’s growing customer base, expanding branch network, and digital capabilities as growth drivers.

From a technical perspective, Pal said the stock continues to form higher highs and higher lows and is trading above its 14-, 55-, and 200-day exponential moving averages across daily, weekly, and monthly charts. 

He said that the Parabolic stop and reverse (SAR) dots remain below the price, and the moving average convergence divergence (MACD) is in positive territory, indicating bullish momentum.

However, Pal noted that the relative strength index (RSI) is above 70, indicating overbought conditions that may lead to a short-term correction. 

He said the stock had tested its prior high of ₹813.40 from January 2024, touching ₹808 on June 19, and is currently near ₹795. 

According to him, a pullback toward ₹775–₹780 could present a buying opportunity with a medium-term target of ₹850 and a stop-loss at ₹725.

The stock has risen 39.1% so far in 2025.

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