AU Small Finance Bank to Seek Universal Banking License from RBI

26 Jul 2024 , 01:56 PM

AU Small Finance Bank plans to apply for a universal banking license from the Reserve Bank of India (RBI) within the next four weeks, as confirmed by MD and CEO Sanjay Agarwal in a recent interview with Moneycontrol.

AU Small Finance Bank’s board of directors approved the move on July 25, following discussions about the license application that began on April 26.

To qualify for a universal banking license, a small finance bank must meet specific criteria: it needs to have a track record of at least five years, be listed on stock exchanges, and have a minimum net worth of ₹1,000 Crore.

At the time of writing on July 26, 2024 at 1:53 pm, shares of AU Small Finance Bank is currently trading at ₹649 which is a 2.80% gain than the previous close. AU Small Finance Bank stock has witnessed a total of 11% dip in the last one year, and 17% dip since the beginning of the year.

Additionally, the bank must meet compound annual growth rate (CRAR) requirements, show net profit in the last two fiscal years, and maintain gross non-performing assets (NPA) and net NPA below 3% and 1%, respectively, in the same period.

The RBI’s guidelines do not require a small finance bank to have an identified promoter to transition to a universal bank. However, existing promoters must continue in their roles, and new or changing promoters are not allowed during the transition.

There will be no new mandatory lock-in requirements for promoter shareholding, and existing plans for promoter shareholding dilution approved by the RBI will remain unchanged.

The RBI’s assessment for transitioning a small finance bank to a universal bank will likely consider these criteria, but the ‘fit and proper’ examination remains at the RBI’s discretion.

To prepare for this transition, AU Small Finance Bank’s board approved raising up to ₹5,000 Crore through equity sales and mobilizing up to ₹6,000 Crore in debt. However, Agarwal has indicated that there is no immediate need for equity capital.

AU Small Finance Bank, headquartered in Jaipur, is India’s largest tech-led small finance bank. It was established as AU Financiers (India) Ltd in 1996 and converted into a small finance bank on April 19, 2017. It was listed on the NSE and BSE the same year.

The bank focuses on providing financial services to low and middle-income individuals and micro and small businesses with limited access to formal banking channels. It offers a range of products including loans, deposits, and payment services.