Shares of AU Small Finance Bank were locked in the 5 percent lower circuit band for the second straight session on Tuesday after the lender reported subdued earnings for the March quarter. The sentiment was also negative after global brokerage Nomura downgraded the stock to 'neutral' from 'buy'. It also more than halved its target price to Rs 500 per share from Rs 1,065 earlier.

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During the March quarter, AU Small Finance Bank reported a 3.5 percent year on year (YoY) growth in profit after tax to Rs 122 crore, affected by higher provisions of Rs 151 crore. Net interest income or NII grew 43 percent YoY to Rs 555 crore, while margins were stable at 5.5 percent.

As per the brokerage, the near-term challenges outweigh the lender's long term opportunities. It added that the company is trading at a significant premium to small finance banks and banks like ICICI Bank.

The stock of the private sector lender has lost 10 percent in the past two trading days to Rs 490.75. It fell nearly 60 percent from its 52-week high level of Rs 1,218, touched on March 2 this year.

“AU Small Bank has reported a steady operating performance, but Covid-19 provisions have dented earnings. The bank has reported robust asset quality ratios. However, collection efficiency has declined due to the lockdown,” Motilal Oswal Securities said in a results update.

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