AU Small Finance Bank Slips Over 7% On Haryana Fallout, Jefferies Maintains ‘Buy’ Rating

Shares of AU Small Finance Bank fell sharply on Monday, sliding 7.62% to an intraday low of ₹950.50, as investors reacted to the lender’s de-empanelment by the Haryana government for government business, despite the bank’s assertion that the move has no financial impact on its operations.

The sell-off came even as global brokerage Jefferies reiterated its ‘Buy’ rating on the stock, calling the market reaction “overdone” and maintaining confidence in the bank’s underlying fundamentals.

What Triggered the Sell-off?

The decline followed AU Small Finance Bank’s disclosure that it had been removed from Haryana’s panel of banks for government business amid scrutiny of certain government-linked transactions. The bank clarified that the transactions were authorised, KYC-compliant, and executed as per instructions, and that there was no adverse impact on the bank’s financial health.

However, the de-empanelment itself unsettled investors, leading to a sharp unwinding of positions, particularly given heightened sensitivity around governance issues in the banking sector.

Jefferies Calls Reaction ‘Overdone’

In its note, Jefferies took a contrarian view of the market move, stating that the financial implications of the Haryana government action are “limited”.

The brokerage highlighted that deposits linked to the Haryana government form only a small fraction of AU Small Finance Bank’s overall deposit base, reducing the risk of any meaningful earnings or liquidity impact. Jefferies also pointed out that the government account under scrutiny had already been closed before the de-empanelment, further constraining downside risk from the episode.

Jefferies retained its target price of ₹1,220, implying significant upside from current levels. The brokerage’s Buy call is anchored in AU Small Finance Bank’s retail-focused growth model, improving profitability profile, and long-term transition plans, including progress towards becoming a universal bank.

The brokerage underscored that the current issue does not alter the lender’s core business trajectory, asset quality trends, or capital position, which remain intact.

Monday’s sharp correction shows the market’s tendency to price in worst-case scenarios during periods of regulatory uncertainty. While the stock reacted swiftly to the headline risk, Jefferies’ stance suggests that the episode is event-driven rather than structural.

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