AU Small Finance Bank’s ₹770 Cr Tier-II raise led by HDFC Bank and Nippon MF reflects investor trust, QIB appetite, and a powerful FY-end capital close.
With year-end timing and an oversubscription 2X the base, AU SFB’s issuance signals strong investor appetite in India’s small finance bank sector.
In a decisive move during a tight liquidity cycle, AU Small Finance Bank (AU SFB), India’s largest small finance bank, has successfully raised ₹770 crore through the issuance of Tier-II bonds at a 9.20% coupon rate. The transaction, executed on the final working day of FY 2024-25, ranks among the largest Tier-II bond issuances ever by a small finance bank in India.
The capital raise is set to enhance the bank’s capital adequacy ratio by approximately 1%, building on its already strong capital position. As of Q3 FY25, AU SFB’s capital adequacy ratio stood at 19.9% (including interim profits for 9M FY25). This latest funding round will fortify its capacity to support strategic growth, strengthen its balance sheet, and deliver digitally powered banking solutions nationwide.
Institutional Trust Amid Adverse Market Conditions
The success of the issuance is particularly noteworthy considering the broader market’s liquidity tightness. Anchor investors for the issuance were HDFC Bank and Nippon India Mutual Fund, both prominent players in India’s financial ecosystem. HDFC Bank not only served as lead manager but also reinforced its long-term partnership with AU SFB by actively investing in the deal.
The bank had launched the bond issue with a base size of ₹400 crore and a green shoe option. With robust interest from qualified institutional buyers (QIBs) , including mutual funds, insurance firms, and pension funds , the issue was oversubscribed nearly 2X. AU SFB ultimately accepted ₹770 crore in bids. These Tier-II bonds are rated ‘AA/Stable’ by both ICRA and CARE Ratings, and carry a 10-year maturity with a call option after five years.
Leadership Commentary
Mr. Sanjay Agarwal, Founder, MD & CEO of AU Small Finance Bank, commented:
“We are delighted with the significant interest in our Tier-II bond issuance. We thank investors for their continuing faith in us amidst a challenging liquidity environment, and especially our long-term partner HDFC Bank. They not only lead-managed this issue but also showed support by investing in the capital raise. This successful transaction reflects the strength of our banking franchise and the trust we’ve built with institutions. These proceeds will power our expansion plans and support our digitally led banking services across India.”
AU SFB’s Capital Evolution
The current issuance marks a continuation of AU SFB’s strategic capital planning. The Board of Directors had earlier approved this raise in its meeting on 7 March 2025, categorising the bonds as Tier-II capital under regulatory norms.
AU SFB last tapped the capital markets in August 2022, raising ₹2,500 crore , including ₹2,000 crore as Tier-I capital and ₹500 crore as Tier-II capital. The present raise takes its total Tier-II mobilisation to over ₹1,200 crore in less than three years.
This capital infusion enables AU SFB to continue expanding its footprint in underserved and semi-urban markets, furthering its vision of inclusive, technology-driven financial services.
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