AU Small Finance Bank Seeks Universal Banking License

AU Small Finance Bank’s board has approved a proposal to transition from a Small Finance Bank (SFB) to a universal bank. This decision aligns with the Reserve Bank of India (RBI) guidelines issued on August 1, 2016, and the circular on voluntary transition of SFBs to universal banks dated April 26, 2024. A four-member Committee of Directors has been formed to oversee the application process, with HR Khan, the bank’s part-time Chairman and Independent Director, serving as Chairperson.

Application Timeline and Committee Formation

The bank plans to submit its application to the RBI by the end of August. The committee, which includes Independent Directors Pushpinder Singh and MS Sriram, as well as Managing Director & CEO Sanjay Agarwal, will manage the application process. Consultants have been engaged to assist with the filing.

RBI Guidelines and Criteria

As per RBI’s April 2024 guidelines, SFBs wishing to become universal banks must meet several criteria:

Minimum net worth of ₹1,000 crore
Listing on a recognized stock exchange
Net profit in the last two financial years
Gross NPA ratio of ≤3% and Net NPA ratio of ≤1%

These criteria aim to ensure that only financially sound and operationally robust banks are eligible for the transition.

Recent Developments and Financial Performance

AU Small Finance Bank, headquartered in Jaipur, recently acquired Fincare Small Finance Bank, with the merger effective from April 1. The combined entity’s total business mix is expected to exceed ₹1.8 lakh crore. For the June quarter, the bank reported a 30% increase in net profit to ₹502 crore and a rise in total income to ₹4,315 crore. Interest income grew to ₹3,769 crore, up from ₹2,458 crore in the same period last year. However, there was a slight increase in asset quality issues, with Gross NPAs at 1.78% and Net NPAs at 0.63%.

Strategic Implications and Future Outlook

AU Small Finance Bank’s decision to apply for a universal banking license highlights its ambition to broaden its operational scope and service offerings. The successful acquisition of Fincare Small Finance Bank and strong financial performance reflect the bank’s readiness for this transition. This strategic move is expected to enhance competition in India’s banking sector and provide a wider range of financial products and services to a larger customer base. The upcoming application submission and its outcome will be crucial in shaping AU Small Finance Bank’s future trajectory in the competitive banking landscape.