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Motilal Oswal Upgrades AU Small Finance Bank Target Price to Rs 1250

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  Published in Business and Finance on Wednesday, January 28th 2026 at 3:45 GMT by moneycontrol.com
      Locales: Maharashtra, Rajasthan, Punjab, INDIA

Mumbai, January 28th, 2026 - Motilal Oswal Financial Services continues to express strong confidence in AU Small Finance Bank, maintaining a 'Buy' rating with a revised target price of Rs 1250 per share. This reaffirmation comes on the heels of a robust quarterly performance and a generally optimistic outlook for the financial institution's future trajectory. The brokerage firm cites marked improvements in both asset quality and overall profitability as key drivers behind their bullish stance.

The Indian financial landscape has witnessed significant transformation over the past few years, with small finance banks playing an increasingly vital role in financial inclusion, particularly in serving the underbanked and unbanked segments of the population. AU Small Finance Bank, established in 2017, has consistently demonstrated an ability to navigate this complex environment, distinguishing itself through its focus on innovation and customer-centric solutions.

Motilal Oswal's upgraded target price reflects an expectation of continued strong performance. While the specific details of the quarterly results prompting this revision weren't fully detailed in the initial announcement, industry analysts suggest key performance indicators (KPIs) likely included a healthy growth in net interest margin (NIM), a reduction in gross and net non-performing assets (NPAs), and a sustained increase in customer acquisition. The bank's ability to maintain these positive trends will be crucial in justifying the projected growth to the Rs 1250 mark.

Asset Quality: A Cornerstone of Confidence

The improvement in asset quality is particularly noteworthy. Traditionally, small finance banks have faced challenges in managing credit risk, given their often-targeted customer base - individuals and small businesses with limited credit history. AU Small Finance Bank's apparent success in mitigating this risk through robust risk management practices and effective loan monitoring is a significant factor in Motilal Oswal's assessment. A lower NPA ratio not only reflects sound lending practices but also frees up capital for further expansion and investment.

Profitability on the Rise

Beyond asset quality, the bank's increasing profitability signals its ability to effectively translate revenue into earnings. This could be attributed to a combination of factors, including efficient cost management, a higher proportion of high-yield loans, and a growing fee income from various financial services. Profitability is a key indicator of a bank's long-term sustainability and ability to deliver returns to shareholders.

Industry Context and Future Growth Potential

The Indian banking sector is projected to experience considerable growth in the coming years, driven by a growing economy, increasing financial literacy, and government initiatives promoting financial inclusion. AU Small Finance Bank is well-positioned to capitalize on these trends. The bank's strategic focus on vehicle finance, MSME lending, and affordable housing finance aligns with the demands of a rapidly evolving Indian economy.

The rise of fintech and digital banking is also reshaping the financial landscape. AU Small Finance Bank has proactively embraced digital technologies, offering a range of online and mobile banking services. This allows the bank to reach a wider customer base, reduce operational costs, and enhance customer experience. Future investment in technologies such as artificial intelligence and machine learning could further strengthen its competitive advantage.

Disclaimer and Investor Caution

As with any investment decision, it is crucial to conduct thorough due diligence and consult with a qualified financial advisor. The 'Buy' rating and target price provided by Motilal Oswal are based on their analysis and projections, which are subject to change based on market conditions and company-specific developments. Investors should carefully consider their risk tolerance and investment objectives before investing in AU Small Finance Bank or any other financial instrument. This report is intended for informational purposes only and should not be considered as investment advice.

The target price of Rs 1250 represents a significant potential upside from the current market price (as of January 28th, 2026), suggesting Motilal Oswal believes the bank is currently undervalued. However, investors should remain mindful of potential risks, including macroeconomic headwinds, regulatory changes, and increased competition within the banking sector.