AU SFB, Federal Bank hit new highs; Karnataka Bank rallies 21% in 3 days

Karnataka Bank, Federal Bank, and AU Small Finance Bank shares were up in the range of 2 per cent to 6 per cent on the BSE on Tuesday

AU Small Bank share price, Federal Bank share price today

 

Shares of select private sector banks (PSBs) were in demand on Tuesday with Karnataka Bank share price rising 6 per cent, while Federal Bank and AU Small Finance Bank (SFB) shares hitting their respective new highs on the BSE in the intraday trade amid heavy volumes.

 

Among individual stocks, Karnataka Bank shares surged 6 per cent to ₹211.75 on the back of heavy volumes. The stock of the bank was trading higher for a third straight day, soaring 21 per cent during the period. Average trading volume on the counter nearly doubled today, with 1.57 million equity shares changing hands on the BSE till 12:02 PM.

 

Federal Bank share price, meanwhile, gained 3 per cent to ₹254.85 on the BSE in the intraday trade. The stock surpassed its previous high of ₹248.50, which it touched on November 19, 2025. Shares of AU SFB, too, hit a new high of ₹938, rising 2 per cent in the intraday deal. The stock surpassed its earlier high of ₹929, touched on November 18, 2025.

 

Why are Federal Bank, AU SFB, Karnataka Bank shares rising?

 

Axis Direct has a 'buy' rating on Federal Bank stock with a share target price of ₹265 per share. The bank's strategy reorientation under the new management is seeing green shoots across most key metrics. Net interest margins (NIMs) have started expanding earlier than expected and should continue their upward trajectory over H2, analysts expect.

 

"While growth has been muted in H1, the bank will look to capitalise on growth opportunities in select target segments as it intends to gradually accelerate profitable growth," according to Axis Direct.

 

Backed by expectations of impeccable strategy execution, the brokerage firm expects Federal Bank's RoA to improve to 1.2–1.4 per cent over FY27–28E, supported by healthy risk-adjusted credit growth; margin improvement levers playing out with portfolio mix shift towards better-yielding segments and lower cost of funds; strong deposit franchise with improving CASA mix; strengthened fee income profile; and stable asset quality metrics keeping credit costs under control.

 

Separately, AU SFB received an 'in-principle' approval from the Reserve Bank of India (RBI) to transition to Universal Bank on August 7, 2025, becoming the first institution in more than a decade to receive the approval.

 

AU SFB has a long track-record and strong experience in its core segment of commercial retail assets, and it has been expanding its base in newer products.

 

"Over the long-term, AU SFB would benefit from its transition to a Universal Bank in terms of improved brand recognition among depositors, which can help in further diversifying retail liabilities with pricing benefit, reduction in mandatory capital adequacy and reduced priority sector lending requirement, which could aid growth. Progress on this front remains a rating monitorable," India Ratings and Research (Ind-Ra) said in a rating rationale.

 

AU SFB had been operating in the retail secured segments and commercial segment even before turning into a bank. Ind-Ra expects the bank to continue to grow its loan book at above-industry rates due to its smaller scale. It believes it is in a better position to grow compared to non-banking financial companies due to the cost of fund advantage.

 

Meanwhile, in the July to September quarter (Q2FY26), Karnataka Bank witnessed a marginal sequential decline in topline performance but achieved improvement in asset quality. The management said the Bank's focus will continue to remain on the RAM (Retail, Agri, and MSME) segments, alongside strengthening its base of low-cost deposits. These efforts are expected to enhance spreads and, in turn, improve NII.

 

The Bank is also actively working to build a high-quality credit portfolio, with initiatives across all levels aimed at minimizing slippages and recovering non-performing assets. Additionally, the Bank's Analytical Centre of Excellence (ACoE) has been instrumental in driving data-led transformation through the implementation of tools such as Retail Loan Propensity, Micro Market Analysis, Deposit Propensity, Primary Bank Index, Collection Prioritization, and Behaviour Scorecard, the management said.

 

============

Disclaimer: View and outlook shared on the stock belong to the respective brokerages and are not endorsed by Business Standard. Readers' discretion is advised.