AU Small Finance Bank to Apply for Universal Bank Licence by August End

AU Small Finance Bank's Managing Director, Sanjay Agarwal, announced on Thursday that the bank plans to apply for a universal banking licence from the Reserve Bank of India (RBI) next month. The board has approved this decision and formed a committee led by Chairman H.R. Khan to oversee the application process.

The committee, which includes three other members, will manage the application submission. Agarwal mentioned that consultants have been hired to assist with the filing. "We should be able to file in the next four weeks, maybe by the end of August," he added.

RBI Guidelines and Criteria

In April, the RBI invited applications from small finance banks that meet specific criteria for becoming universal banks. These criteria include having a minimum net worth of Rs 1,000 crore and being listed on a recognised stock exchange. Additionally, the bank must have reported a net profit in the last two financial years and maintain Gross NPA and Net NPA ratios of less than or equal to 3% and 1%, respectively.

The guidelines for licensing small finance banks in the private sector were issued by the RBI in November 2014. As per these guidelines, an SFB aiming to become a universal bank should meet all specified financial and operational criteria.

Recent Merger and Financial Performance

AU Small Finance Bank, based in Jaipur, recently acquired Fincare Small Finance Bank. The merger became effective from April 1 this year. With this merger, the total business mix of the combined entity is expected to exceed Rs 1.8 lakh crore.

Earlier in the day, AU Small Finance Bank reported a significant increase in its net profit for the June quarter. The net profit rose by 30% to Rs 502 crore compared to the same period last year. The bank's total income also saw an increase, reaching Rs 4,315 crore against Rs 2,773 crore a year ago.

Interest income grew to Rs 3,769 crore during this period from Rs 2,458 crore in the corresponding quarter of the previous year. However, there was a slight deterioration in asset quality. Gross non-performing assets (NPAs) rose to 1.78% of gross advances as of June 30, 2024, compared to 1.76% at the end of the first quarter of the previous fiscal year.

Net NPAs also increased slightly to 0.63% of advances from 0.55% at the end of the first quarter last year. Despite these minor setbacks in asset quality, AU Small Finance Bank continues to show strong financial performance and growth potential.

The RBI's invitation for applications aligns with its ongoing efforts to expand and diversify India's banking sector by allowing well-performing small finance banks to transition into universal banks. This move is expected to enhance competition and provide more comprehensive banking services across the country.

AU Small Finance Bank's strategic decision to apply for a universal banking licence reflects its ambition to expand its operations and service offerings further. The successful acquisition of Fincare Small Finance Bank and robust financial performance underscore its readiness for this transition.

The bank's proactive steps towards meeting RBI's criteria demonstrate its commitment to growth and adherence to regulatory standards. This development marks a significant milestone in AU Small Finance Bank's journey towards becoming a universal bank.

The upcoming months will be crucial as AU Small Finance Bank prepares its application for submission to the RBI. The outcome will determine its future trajectory in India's competitive banking landscape.

This strategic move aims not only at expanding AU Small Finance Bank's market presence but also at enhancing its ability to offer diverse financial products and services to a broader customer base across India.