We have audited the accompanying Financial Statements of AU Small Finance Bank Limited ('the Bank'), which comprise theBalance Sheet as at March 31, 2026, the Profit and Loss Account, and Cash Flow Statement for the year then ended, andnotes 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 FinancialStatements give the information required by the Banking Regulation Act, 1949, the guidelines issued by the Reserve Bank ofIndia ('RBI') from time to time ('RBI Guidelines') and the Companies Act, 2013 ('the Act') in the manner so required for bankingcompanies and give a true and fair view in conformity with the Accounting Standards prescribed under section 133 of the Actread with Companies (Accounting Standards) Rules, 2021 and other accounting principles generally accepted in India, of thestate 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. Ourresponsibilities under those SAs are further described in the Auditor's Responsibilities for the Audit of the Financial Statementssection of our report. We are independent of the Bank in accordance with the Code of Ethics issued by the Institute ofChartered Accountants of India ('ICAI') together with the ethical requirements that are relevant to our audit of the FinancialStatements under the provisions of the Act and the Rules thereunder, and we have fulfilled our other ethical responsibilitiesin accordance with these requirements and the Code of Ethics. We believe that the audit evidence obtained is sufficient andappropriate 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 FinancialStatements for the year ended March 31, 2026. These matters were addressed in the context of our audit of the FinancialStatements 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.
Key Audit Matter
How our audit addressed the Key Audit Matter
Identification and provisioning of non-performing advances (NPA):
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)
(Refer Schedule 9, Schedule 17(4A) and Schedule 18(5(a))
The Reserve Bank of India's guidelines on Income recognitionand asset classification & Provisioning ('IRAC') and other
Our audit procedures with respect to this matter included:
circulars and directives issued by the RBI from time to time,
Tested the design and operating effectiveness of key controls
which prescribe the prudential norms for identification and
over approval, recording, monitoring and recovery of loans,
classification of performing & non-performing assets ('NPA')
monitoring overdue accounts, identification of NPA, provision
and the minimum provision required for such assets. TheBank is required to have Board approved policy as per IRAC
for NPA and valuation of security and collateral on a testcheck basis.
guidelines for NPA identification & classification of advances
Obtained an understanding of the additional provision carried
and provision thereon.
by the Bank and verified the underlying assumptions used by
The provision on NPA is estimated based on ageingand classification of NPAs, recovery estimates, natureof loan product, value of security and other qualitativefactors and is subject to the minimum provisioning norms
the Bank for such estimate.
Tested application controls included test of automated controls,reports and system reconciliations.
specified by RBI and approved policy of the Bank in
Reviewed existence and effectiveness of monitoring
this regard.
mechanisms such as Internal Audit, Systems Audit, andConcurrent Audit as per the policies and procedures ofthe Bank.
The Bank is also required to apply its judgement to determine
Evaluated the governance process and review controls
the identification and provision required against NPAs by
over calculations of provision of non-performing advances,
applying quantitative as well as qualitative factors. The risk
basis of provisioning in accordance with the Board
of identification of NPAs is affected by factors like stress
approved policy.
and liquidity concerns in certain sectors.
Selected a sample of borrowers based on quantitative
Additionally, the Bank makes additional provisions
and qualitative risk factors for their assessment of appropriate
on Retail Unsecured Portfolio, including Microfinance, Credit
identification & classification as NPA including computation of
Card and Personal Loan.
overdue ageing to assess its correct classification and provisionamount as per extant IRAC norms and the Bank policy.
Since the identification of NPAs and provisioning for
advances require significant level of estimation and
Performed other substantive procedures included and not
given its significance to the overall audit including
limited to the following:
possible observation by RBI which could result into
• Selected samples of performing loans and assessed
disclosure in the Financial Statements, we have
independently as to whether those should be classified
ascertained identification and provisioning for NPAs as
as NPA
a key audit matter.
• For samples selected, reviewed the collateral valuations,Financial Statements and other qualitative information
• Considered the accounts reported by the Bank and otherBanks as Special Mention Accounts ('SMA') in RBI's CentralRepository of Information on Large Credits (CRILC)/Centralised Information Management System (CIMS) toidentify stress.
• For selected samples, assessed independently, the accountsthat can potentially be classified as NPA.
• Inquired with the credit and risk departments to ascertainif there were indicators of stress or an occurrence of anevent of default in a particular loan account or any productcategory which needed to be considered as NPA.
• Examined the accounts under watchlist report provided bythe risk department.
• Discussed with the management of the Bank on sectorswhere there is a perceived credit risk and the steps takento mitigate the risks to identified sectors.
• Selected and tested samples for accounts which arerestructured as per RBI Direction on Income Recognition,Asset Classification and Provisioning pertaining toAdvances; and
• Assessed appropriateness & the adequacy of disclosuresagainst the relevant accounting standards and RBIrequirements relating to NPAs.
Information Technology ('IT') systems and controls impacting financial reporting
The Bank has a complex IT architecture to support its day-
Our Audit procedures with respect to this matter included:
to-day business operations. Large volume of transactions are
processed and recorded on single or multiple applications.
For testing the IT general controls, application controlsand IT dependent manual controls, we involved IT
The reliability and security of IT systems plays a key role in
specialists as part of the audit. The IT team also assisted
the business operations of the Bank. Since large volume of
in testing the accuracy of the information produced by
transactions are processed daily, the IT controls are required
the Bank's IT systems.
to ensure that applications process data as expected and
that changes are made in an appropriate manner.
Obtained a comprehensive understanding of IT applicationslandscape implemented at the Bank. It was followed by processunderstanding, mapping of applications to the same andunderstanding financial risks posed by people-process and
Appropriate IT general controls and application controls are
Key IT audit procedures includes testing design and operating
required to ensure that such IT systems are able to process
effectiveness of key controls operating over user access
the data, as required, completely, accurately and consistently
management (which includes user access provisioning, de-
for reliable financial reporting.
provisioning, access review, password configuration review,
We have identified 'IT systems and controls' as key audit
segregation of duties and privilege access), change management
(which include change release in production environment
matter because of the high-level automation, significant
are compliant to the defined procedures and segregation of
number of systems being used by the Bank and the
environment is ensured), program development (which include
complexity of the IT architecture and its impact on the
review of data migration activity), computer operations (which
financial reporting system.
includes testing of key controls pertaining to, backup, batchprocessing (including interface testing), incident managementand data centre security), system interface controls. Thisincluded testing that requests for access to systems wereappropriately logged, reviewed, and authorized.
In addition to the above, the design and operating effectivenessof certain automated controls, that were considered askey internal system controls over financial reporting weretested. Using various techniques such as inquiry, reviewof documentation / record / reports, observation, and re¬performance. We also tested few controls using negativetesting technique.
Tested compensating controls and performed alternateprocedures, where necessary. In addition, understoodwhere relevant changes made to the IT landscape duringthe audit period.
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 informationincluded in the Annual Report but does not include the Financial Statements and our auditor's report thereon. The AnnualReport 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 assuranceconclusion thereon. In connection with our audit of the Financial Statements, our responsibility is to read the other informationidentified above when it becomes available and, in doing so, consider whether the other information is materially inconsistentwith 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 communicatethe 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 FinancialStatements
The Bank's Board of Directors is responsible for the matters stated in section 134(5) of the Act with respect to the preparationand 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 AccountingStandards specified under section 133 of the Act, and provisions of Section 29 of the Banking Regulation Act, 1949 and thecirculars & directions and the RBI Guidelines. This responsibility also includes maintenance of adequate accounting recordsin accordance with the provisions of the Act, Banking Regulation Act, 1949 and circulars & directions and RBI Guidelinesfor safeguarding of the assets of the Bank and for preventing and detecting frauds and other irregularities; selection andapplication 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 theaccuracy and completeness of the accounting records, relevant to the preparation and presentation of the Financial Statementsthat 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 agoing concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accountingunless the Board of Directors either intends to liquidate the Bank or to cease operations, or has no realistic alternative butto 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 materialmisstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a highlevel of assurance, but is not a guarantee that an audit conducted in accordance with SAs will always detect a material misstatement whenit exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, theycould 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 throughoutthe audit. We also:
• Identify and assess the risks of material misstatement of the Financial Statements, whether due to fraud or error, designand perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate toprovide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for oneresulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override ofinternal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriatein the circumstances. Under section 143(3)(i) of the Act, we are also responsible for expressing our opinion on whetherthe Bank has internal financial controls with reference to Financial Statements in place and the operating effectivenessof such controls.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and relateddisclosures made by management.
• Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the auditevidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubton the Bank's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are requiredto draw attention in our auditor's report to the related disclosures in the Financial Statements or, if such disclosures areinadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor'sreport. 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 whetherthe 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 theaudit 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 requirementsregarding independence, and to communicate with them all relationships and other matters that may reasonably be thoughtto 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 mostsignificance in the audit of the Financial Statements for the current Year and are therefore, the key audit matters. Wedescribe 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 adverseconsequences 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 ofSection 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, werenecessary 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 availabletherein. 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 werenecessary 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 ourexamination 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 agreementwith the books of account.
d. In our opinion, the aforesaid Financial Statements comply with the Accounting Standards specified under Section 133of 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 theparagraph 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 theBoard of Directors, none of the directors are disqualified as on March 31, 2026 from being appointed as a director interms 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 andthe 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 explanationsgiven to us:
i. The Bank has disclosed the impact of pending litigations on its financial position in its Financial Statements - ReferSchedule 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 foreseeablelosses 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 bythe 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 fromborrowed 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 orotherwise, that the Intermediary shall, directly or indirectly lend or invest in other persons or entities identified inany manner whatsoever by or on behalf of the Bank ("Ultimate Beneficiaries") or provide any guarantee, securityor 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) ofSchedule 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 orentities identified in any manner whatsoever by or on behalf of the Funding Party ("Ultimate Beneficiaries") orprovide 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 thecircumstances, and according to the information and explanations provided to us by the Management in thisregard 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 andthe 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 onesoftware 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 accountingsoftware(s). Also, during the course of our audit, we did not come across any instance of the audit trail featurebeing 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 enabledand recorded in respective years.
i. With respect to the other matters to be included in the Auditor's Report in accordance with the requirementsof 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