Morgan Stanley expects AU Small Finance Bank shares to rise up to 41% on strong growth prospects

For AU Small Finance Bank, the margin have bottomed out and the lender is expected to improve these over the next few years as against many Indian banks, which are expected to see a further decline in net interest margins (NIMs) in future, the brokerage stated.

“This will be done by strong growth and peaking of the rate cycle,” it said.

The brokerage, however, highlighted that the credit cost of the lender is yet to normalise, but it should not hinder 25%-30% EPS growth as valuations have de-rated.

The brokerage also expects the bank’s potential merger with Fincare SFB to provide material upside if well-executed. “Expect >5% upside for FY26 EPS, if deal is consummated & well executed,” Morgan Stanley stated.

Fincare Small Finance Bank, a leading digital-first small finance bank, will be merged into AU Small Finance Bank through the RBI-administered scheme of amalgamation under Section 44A of the Banking Regulation Act, 1949.

Shareholders of Fincare SFB will receive 579 shares in AU SFB for every 2,000 shares held in Fincare SFB.

Post transaction, existing shareholders of Fincare SFB shall hold 9.9% in AU SFB.

Shares of AU Small Finance Bank were trading 2.61% higher at ₹726.45 apiece at 11.55am on Monday, November 13.