AU Bank, the biggest of the 11 small finance banks operating in the country, received the approval Thursday, in a development that can be considered a milestone in its journey. This opens the door for other small banks for a transition into big banks.
“We have made history by receiving in-principle approval from the Reserve Bank of India to transition into a universal bank. This milestone is a reaffirmation of our purpose, perseverance, and passion,” AU Bank founder-cum-managing director Sanjay Agarwal said.
The application for this transition was submitted on September 3, 2024, under the RBI’s ‘on tap’ licensing guidelines and the framework for the voluntary conversion of small finance banks to universal banks. Ujjivan and Jana are the two other entities in the small finance bank space which also applied for the voluntary transition.
The last time RBI granted universal banking licence to Bandhan Bank and IDFC Bank (now IDFC First Bank) was in April 2014.
According to the central bank guidelines, listed small finance banks with minimum net worth of Rs 1,000 crore at the end of the previous quarter are eligible to apply for a transition. They also need to have a minimum 15% capital to risk-weighted assets ratio and net profits in the preceding two financial years. Their gross non-performing assets has to be less than or equal to 3% for two preceding financial years while the net non-performing assets has to be less than or equal to 1% for two preceding financial years.AU Bank’s history dates back to 1996 when it was founded as a vehicle finance company. It was converted into a small finance bank in April 2017 and was listed on the stock exchanges on July 10 the same year.
Its net profit for FY25 stood at Rs 1,592 crore as compared with Rs 1,428 crore in the preceding fiscal. The net profit for the first quarter of the fiscal was at Rs 581 crore. Its gross NPA was 2.47% at the end of June, up from 1.78% a year back. Net NPA was at 0.88% against 0.63%.
After transition into a universal lender, AU Bank’s capital adequacy requirement would come down from 15% while the priority sector lending target would be lower at 40% instead of 60%. Then the norm of having at least 50% of the loan portfolio in loans less than Rs 25 lakh would also not apply.
Shares of AU Bank closed 1.24% higher at Rs 743.80 apiece on the BSE on Thursday, a day when the Sensex ended 0.098% higher. The RBI approval came after market hours.