New Delhi: The Reserve Bank of India (RBI) has granted an ‘in-principle’ approval to AU Small Finance Bank (AU SFB) to transition into a universal bank, marking the first such regulatory clearance in nearly a decade. The last similar approval was given to Bandhan Bank in 2015.
AU SFB had submitted its application in September 2024 under the revised guidelines for small finance banks (SFBs) seeking upgradation, issued by the RBI in April 2024. The regulatory framework mandates a minimum operational track record of five years, a net worth of Rs 1,000 crore or more, consistent profitability, adherence to capital adequacy norms, and a manageable level of non-performing assets (NPAs).
The proposed transition would enable AU SFB to broaden its operational scope, allowing it to offer larger ticket loans, expand its customer base, and set up subsidiaries capabilities that are currently restricted under the SFB model.
For the quarter ended June 30, 2025, AU SFB reported a 16% year-on-year growth in net profit to Rs 581 crore. However, its gross NPA ratio increased to 2.47%, up from 1.78% a year earlier, a metric that may attract regulatory scrutiny as it moves towards universal banking.
While this is only an initial approval, AU SFB will need to meet additional conditions to obtain the final licence. The move signals regulatory openness to enabling scale for eligible SFBs and could influence the strategic outlook of other players in the segment.
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