We have audited the accompanying Financial Statements of AU Small Finance Bank Limited ('the Bank'), which comprise the
Balance Sheet as at March 31, 2026, the Profit and Loss Account, and Cash Flow Statement for the year then ended, and
notes to the Financial Statements, including a summary of significant accounting policies and other explanatory information
(hereinafter referred to as the 'Financial Statements').
In our opinion and to the best of our information and according to the explanations given to us, the aforesaid Financial
Statements give the information required by the Banking Regulation Act, 1949, the guidelines issued by the Reserve Bank of
India ('RBI') from time to time ('RBI Guidelines') and the Companies Act, 2013 ('the Act') in the manner so required for banking
companies and give a true and fair view in conformity with the Accounting Standards prescribed under section 133 of the Act
read with Companies (Accounting Standards) Rules, 2021 and other accounting principles generally accepted in India, of the
state of affairs of the Bank as at March 31, 2026, its profit, and its cash flows for the year ended on that date.
Basis for Opinion
We conducted our audit in accordance with the Standards on Auditing ('SAs') specified under section 143(10) of the Act. Our
responsibilities under those SAs are further described in the Auditor's Responsibilities for the Audit of the Financial Statements
section of our report. We are independent of the Bank in accordance with the Code of Ethics issued by the Institute of
Chartered Accountants of India ('ICAI') together with the ethical requirements that are relevant to our audit of the Financial
Statements under the provisions of the Act and the Rules thereunder, and we have fulfilled our other ethical responsibilities
in accordance with these requirements and the Code of Ethics. We believe that the audit evidence obtained is sufficient and
appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the Financial
Statements for the year ended March 31, 2026. These matters were addressed in the context of our audit of the Financial
Statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
We have determined the matters described below to be the key audit matters to be communicated in our report.
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Key Audit Matter
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How our audit addressed the Key Audit Matter
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Identification and provisioning of non-performing advances (NPA):
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Total Loans and Advances (Net of Provision) as at March 31, 2026: Rs. 2,75,56,406 (in '000s)
Provision for NPA as at March 31, 2026: Rs. 1,76,57,419 (in '000s)
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(Refer Schedule 9, Schedule 17(4A) and Schedule 18(5(a))
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The Reserve Bank of India's guidelines on Income recognition
and asset classification & Provisioning ('IRAC') and other
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Our audit procedures with respect to this matter included:
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circulars and directives issued by the RBI from time to time,
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Tested the design and operating effectiveness of key controls
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which prescribe the prudential norms for identification and
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over approval, recording, monitoring and recovery of loans,
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classification of performing & non-performing assets ('NPA')
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monitoring overdue accounts, identification of NPA, provision
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and the minimum provision required for such assets. The
Bank is required to have Board approved policy as per IRAC
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for NPA and valuation of security and collateral on a test
check basis.
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guidelines for NPA identification & classification of advances
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Obtained an understanding of the additional provision carried
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and provision thereon.
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by the Bank and verified the underlying assumptions used by
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The provision on NPA is estimated based on ageing
and classification of NPAs, recovery estimates, nature
of loan product, value of security and other qualitative
factors and is subject to the minimum provisioning norms
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the Bank for such estimate.
Tested application controls included test of automated controls,
reports and system reconciliations.
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specified by RBI and approved policy of the Bank in
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Reviewed existence and effectiveness of monitoring
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this regard.
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mechanisms such as Internal Audit, Systems Audit, and
Concurrent Audit as per the policies and procedures of
the Bank.
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Key Audit Matter
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How our audit addressed the Key Audit Matter
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The Bank is also required to apply its judgement to determine
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Evaluated the governance process and review controls
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the identification and provision required against NPAs by
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over calculations of provision of non-performing advances,
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applying quantitative as well as qualitative factors. The risk
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basis of provisioning in accordance with the Board
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of identification of NPAs is affected by factors like stress
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approved policy.
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and liquidity concerns in certain sectors.
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Selected a sample of borrowers based on quantitative
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Additionally, the Bank makes additional provisions
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and qualitative risk factors for their assessment of appropriate
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on Retail Unsecured Portfolio, including Microfinance, Credit
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identification & classification as NPA including computation of
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Card and Personal Loan.
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overdue ageing to assess its correct classification and provision
amount as per extant IRAC norms and the Bank policy.
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Since the identification of NPAs and provisioning for
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advances require significant level of estimation and
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Performed other substantive procedures included and not
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given its significance to the overall audit including
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limited to the following:
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possible observation by RBI which could result into
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• Selected samples of performing loans and assessed
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disclosure in the Financial Statements, we have
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independently as to whether those should be classified
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ascertained identification and provisioning for NPAs as
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as NPA
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a key audit matter.
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• For samples selected, reviewed the collateral valuations,
Financial Statements and other qualitative information
• Considered the accounts reported by the Bank and other
Banks as Special Mention Accounts ('SMA') in RBI's Central
Repository of Information on Large Credits (CRILC)/
Centralised Information Management System (CIMS) to
identify stress.
• For selected samples, assessed independently, the accounts
that can potentially be classified as NPA.
• Inquired with the credit and risk departments to ascertain
if there were indicators of stress or an occurrence of an
event of default in a particular loan account or any product
category which needed to be considered as NPA.
• Examined the accounts under watchlist report provided by
the risk department.
• Discussed with the management of the Bank on sectors
where there is a perceived credit risk and the steps taken
to mitigate the risks to identified sectors.
• Selected and tested samples for accounts which are
restructured as per RBI Direction on Income Recognition,
Asset Classification and Provisioning pertaining to
Advances; and
• Assessed appropriateness & the adequacy of disclosures
against the relevant accounting standards and RBI
requirements relating to NPAs.
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Information Technology ('IT') systems and controls impacting financial reporting
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The Bank has a complex IT architecture to support its day-
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Our Audit procedures with respect to this matter included:
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to-day business operations. Large volume of transactions are
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processed and recorded on single or multiple applications.
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For testing the IT general controls, application controls
and IT dependent manual controls, we involved IT
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The reliability and security of IT systems plays a key role in
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specialists as part of the audit. The IT team also assisted
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the business operations of the Bank. Since large volume of
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in testing the accuracy of the information produced by
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transactions are processed daily, the IT controls are required
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the Bank's IT systems.
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to ensure that applications process data as expected and
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that changes are made in an appropriate manner.
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Obtained a comprehensive understanding of IT applications
landscape implemented at the Bank. It was followed by process
understanding, mapping of applications to the same and
understanding financial risks posed by people-process and
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Key Audit Matter
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How our audit addressed the Key Audit Matter
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Appropriate IT general controls and application controls are
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Key IT audit procedures includes testing design and operating
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required to ensure that such IT systems are able to process
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effectiveness of key controls operating over user access
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the data, as required, completely, accurately and consistently
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management (which includes user access provisioning, de-
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for reliable financial reporting.
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provisioning, access review, password configuration review,
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We have identified 'IT systems and controls' as key audit
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segregation of duties and privilege access), change management
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(which include change release in production environment
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matter because of the high-level automation, significant
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are compliant to the defined procedures and segregation of
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number of systems being used by the Bank and the
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environment is ensured), program development (which include
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complexity of the IT architecture and its impact on the
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review of data migration activity), computer operations (which
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financial reporting system.
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includes testing of key controls pertaining to, backup, batch
processing (including interface testing), incident management
and data centre security), system interface controls. This
included testing that requests for access to systems were
appropriately logged, reviewed, and authorized.
In addition to the above, the design and operating effectiveness
of certain automated controls, that were considered as
key internal system controls over financial reporting were
tested. Using various techniques such as inquiry, review
of documentation / record / reports, observation, and re¬
performance. We also tested few controls using negative
testing technique.
Tested compensating controls and performed alternate
procedures, where necessary. In addition, understood
where relevant changes made to the IT landscape during
the audit period.
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Information Other than the Financial Statements and Auditor’s Report Thereon
The Bank's Board of Directors are responsible for the other information. The other information comprises the information
included in the Annual Report but does not include the Financial Statements and our auditor's report thereon. The Annual
Report is expected to be made available to us after the date of this auditor's report.
Our opinion on the Financial Statements does not cover the other information and we will not express any form of assurance
conclusion thereon. In connection with our audit of the Financial Statements, our responsibility is to read the other information
identified above when it becomes available and, in doing so, consider whether the other information is materially inconsistent
with the Financial Statements, or knowledge obtained in the audit, or otherwise appears to be materially misstated.
When we read the Annual Report, if we conclude that there is a material misstatement therein, we are required to communicate
the matter to those charged with governance and take appropriate action as applicable under the relevant laws and regulations.
Responsibilities of Management and Those Charged with Governance for the Financial
Statements
The Bank's Board of Directors is responsible for the matters stated in section 134(5) of the Act with respect to the preparation
and presentation of these Financial Statements that give a true and fair view of the financial position, financial performance,
and cash flows of the Bank in accordance with the accounting principles generally accepted in India, including the Accounting
Standards specified under section 133 of the Act, and provisions of Section 29 of the Banking Regulation Act, 1949 and the
circulars & directions and the RBI Guidelines. This responsibility also includes maintenance of adequate accounting records
in accordance with the provisions of the Act, Banking Regulation Act, 1949 and circulars & directions and RBI Guidelines
for safeguarding of the assets of the Bank and for preventing and detecting frauds and other irregularities; selection and
application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design,
implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the
accuracy and completeness of the accounting records, relevant to the preparation and presentation of the Financial Statements
that give a true and fair view and are free from material misstatement, whether due to fraud or error.
In preparing the Financial Statements, the Board of Directors is responsible for assessing the Bank's ability to continue as a
going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting
unless the Board of Directors either intends to liquidate the Bank or to cease operations, or has no realistic alternative but
to do so.
The Board of Directors are also responsible for overseeing the Bank's financial reporting process.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the Financial Statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high
level of assurance, but is not a guarantee that an audit conducted in accordance with SAs will always detect a material misstatement when
it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they
could reasonably be expected to influence the economic decisions of users taken on the basis of these Financial Statements.
As part of an audit in accordance with SAs, we exercise professional judgment and maintain professional skepticism throughout
the audit. We also:
• Identify and assess the risks of material misstatement of the Financial Statements, whether due to fraud or error, design
and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to
provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one
resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate
in the circumstances. Under section 143(3)(i) of the Act, we are also responsible for expressing our opinion on whether
the Bank has internal financial controls with reference to Financial Statements in place and the operating effectiveness
of such controls.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related
disclosures made by management.
• Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit
evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt
on the Bank's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required
to draw attention in our auditor's report to the related disclosures in the Financial Statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's
report. However, future events or conditions may cause the Bank to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the Financial Statements, including the disclosures, and whether
the Financial Statements represent the underlying transactions and events in a manner that achieves fair presentation.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the
audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements
regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought
to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most
significance in the audit of the Financial Statements for the current Year and are therefore, the key audit matters. We
describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when,
in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse
consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
Report on Other Legal and Regulatory Requirements
1. The Balance Sheet and the Profit and Loss Account have been drawn up in accordance with the provisions of
Section 29 of the Banking Regulation Act, 1949 and Section 133 of the Act and relevant rules issued thereunder.
2. As required by sub-section (3) of section 30 of the Banking Regulation Act, 1949, we report that:
a. We have sought and obtained all the information and explanations which, to the best of our knowledge and belief, were
necessary for the purpose of our audit and have found them to be satisfactory;
b. The transactions of the Bank, which have come to our notice, have been within the powers of the Bank.
c. Since the key operations of the Bank are automated with the key applications integrated to the core banking systems,
the audit is carried out centrally as all the necessary records and data required for the purposes of our audit are available
therein. During the course of our audit we have visited 35 branches including asset centres.
3. As required by Section 143(3) of the Act, we report that:
a. We have sought and obtained all the information and explanations which to the best of our knowledge and belief were
necessary for the purposes of our audit.
b. In our opinion, proper books of account as required by law have been kept by the Bank so far as it appears from our
examination of those books, except for the matters stated in paragraph 3(h)(vi) below on reporting under Rule 11(g).
c. The Balance Sheet, the Profit and Loss Account and the Cash Flow Statement dealt with by this Report are in agreement
with the books of account.
d. In our opinion, the aforesaid Financial Statements comply with the Accounting Standards specified under Section 133
of the Act, to the extent they are not inconsistent with the guidelines prescribed by RBI.
e. The reservation relating to the maintenance of accounts and other matters connected therewith are as stated in the
paragraph 3(b) above on reporting under Section 143(3)(b) and paragraph 3(h)(vi) below on reporting under Rule 11(g).
f. On the basis of the written representations received from the directors as on March 31, 2026 taken on record by the
Board of Directors, none of the directors are disqualified as on March 31, 2026 from being appointed as a director in
terms of Section 164 (2) of the Act.
g. With respect to the adequacy of the internal financial controls with reference to Financial Statements of the Bank and
the operating effectiveness of such controls, refer to our separate Report in "Annexure A”.
h. With respect to the other matters to be included in the Auditor's Report in accordance with Rule 11 of the Companies
(Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according to the explanations
given to us:
i. The Bank has disclosed the impact of pending litigations on its financial position in its Financial Statements - Refer
Schedule 12 to the Financial Statements.
ii. The Bank did not have any long-term contracts as at year end for which there were any material foreseeable losses.
The Bank has made provision, as required under the applicable law or accounting standards, for material foreseeable
losses on derivative contracts - Refer Schedule 12 and Note A(8) of Schedule 18 to the Financial Statements.
iii. There were no amounts which were required to be transferred to the Investor Education and Protection Fund by
the Bank.
iv. a. The Management has represented that, to the best of it's knowledge and belief, as disclosed in Note B(8) of
Schedule 18 to the Financial Statements, no funds have been advanced or loaned or invested (either from
borrowed funds or share premium or any other sources or kind of funds) by the Bank to or in any other person(s)
or entity(ies), including foreign entities ("Intermediaries"), with the understanding, whether recorded in writing or
otherwise, that the Intermediary shall, directly or indirectly lend or invest in other persons or entities identified in
any manner whatsoever by or on behalf of the Bank ("Ultimate Beneficiaries") or provide any guarantee, security
or the like on behalf of the Ultimate Beneficiaries.
b. The Management has represented, that, to the best of it's knowledge and belief, as disclosed in Note B(8) of
Schedule 18 to the Financial Statements, no funds have been received by the Bank from any person(s) or entity(ies),
including foreign entities (Funding Parties), with the understanding, whether recorded in writing or otherwise,
as on the date of this audit report, that the Bank shall, directly or indirectly, lend or invest in other persons or
entities identified in any manner whatsoever by or on behalf of the Funding Party ("Ultimate Beneficiaries") or
provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.
c. Based on the audit procedures performed that have been considered reasonable and appropriate in the
circumstances, and according to the information and explanations provided to us by the Management in this
regard nothing has come to our notice that has caused us to believe that the representations under sub-clause
(i) and (ii) of Rule 11(e) as provided under (1) and (2) above, contain any material mis-statement.
v. The Bank has declared and paid dividend during the year which is in compliance with section 123 of the Act and
the Banking Regulation Act, 1949.
vi. Based on our examination which included test checks, the Bank has used certain accounting software(s)
for maintaining its books of account, which has a feature of recording the audit trail (edit log) facility,
except that audit trail feature was enabled from May 20, 2025 for certain masters in respect of one
software to log any changes as explained in Note B(23) of Schedule 18 to the financial statements.
Further, where enabled, the audit trail feature has operated for the relevant transactions recorded in the accounting
software(s). Also, during the course of our audit, we did not come across any instance of the audit trail feature
being tampered with in respect of such accounting software(s). Additionally, the audit trail feature of prior year(s)
has been preserved by the Bank as per the statutory requirements for record retention to the extent it was enabled
and recorded in respective years.
i. With respect to the other matters to be included in the Auditor's Report in accordance with the requirements
of Section 197(16) of the Act, as amended, the Bank is a banking Company as defined under Banking Regulation Act,
1949. Accordingly, the requirements prescribed under Section 197 read with Schedule V of the Act do not apply.
For M S K A & Associates LLP For Mukund M Chitale & Co.
(Formerly Known as M S K A & Associates) Chartered Accountants
Chartered Accountants ICAI Firm Registration No.: 106655W
ICAI Firm Registration No.: 105047W/W101187
Tushar Kurani Abhay Kamat
Partner Partner
Membership No.: 118580 Membership No.: 039585
UDIN: 26118580PDDTYM7461 UDIN: 26039585XYPSJN3230
Mumbai Mumbai
April 27, 2026 April 27, 2026
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