AU Small Finance Bank Seeks Universal Banking License: Submitted Application to RBI

Jaipur-based AU Small Finance Bank (AU SFB) has taken a significant step towards expanding its operations by submitting an application to the Reserve Bank of India (RBI) for a voluntary transition from a small finance bank to a universal bank. This strategic move comes amidst the bank’s ongoing merger with Fincare Small Finance Bank.

The RBI’s guidelines for converting small finance banks (SFBs) into universal banks were introduced in April 2024. To qualify, an SFB must be listed, have a minimum net worth of ₹1,000 crore, and a satisfactory track record of at least five years. Additionally, the bank must have been profitable in the previous two financial years with low non-performing asset (NPA) ratios and meet specific capital adequacy requirements.

Among the existing SFBs, only AU SFB and Ujjivan Small Finance Bank currently meet the eligibility criteria for conversion. While Jana Small Finance Bank will be eligible next year once it reduces its NPAs, many other SFBs are exploring this transition as a means to overcome the limitations imposed on their growth by their geographical concentration and lending caps.

As a small finance bank, AU SFB is subject to restrictions on its lending activities and branch network. These restrictions are designed to ensure that the bank focuses on serving underserved rural areas and micro, small, and medium enterprises (MSMEs). However, as a universal bank, AU SFB would have greater flexibility to expand its operations and lend to a wider range of customers.

The bank’s recent financial performance has been strong, with a 30% increase in net profit and a 54% jump in net interest income in the first quarter of the current fiscal year. This positive trajectory suggests that AU SFB is well-positioned to meet the challenges and opportunities associated with becoming a universal bank.

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