AU SFB submits application for universal banking licence

Jaipur-based AU Small Finance Bank has submitted its application to the Reserve Bank of India (RBI) to transition into a universal bank.

"We wish to inform that the bank has submitted an application to the Reserve Bank of India to seek approval for voluntary transition from a small finance bank to universal bank today i.e. on 3 September, 2024," said the bank in a notification to the stock exchanges.

The submission of the application comes at a time when AU SFB is in the midst of integrating with Fincare SFB. The two SFBs had announced a merger on 1 April. 

RBI had laid down certain guidelines in April for conversion of SFBs into universal banking licence. 

Read more: Weak bank deposit growth: Beware faulty explanations

Only listed SFBs could qualify for a universal banking license, according to these guidelines. Those intending to convert must have a minimum net worth of ₹1,000 crore and a scheduled status with a satisfactory track record of at least five years. 

They should also have been profitable, with gross non-performing assets of less than 3% and net non-performing assets of less than 1% in the previous two financial years. They must also meet the prescribed capital adequacy requirements and provide a detailed rationale for their transition.

Among the SFBs, only AU SFB and Ujjivan SFB meet the eligibility criteria to convert itself into a full blown bank. Others like Jana SFB will be eligible next year once it brings down its net non-performing asset (NNPA) ratio.

Conversion is considered a stepping stone in the journey of many SFBs which feel that their growth is being limited due to their geographical concentration and lending cap. SFBs need to keep at least 75% of their loans below ₹25 lakh and at least 25% of their branches must be in rural areas that lack banking services, as per the rules. 

Read more: ICICI Bank has staged an amazing turnaround. Is it overvalued now?

This is in contrast to universal banks, which have no such restrictions besides ensuring that 40% of their loans are given to priority sectors like agriculture and micro, small and medium enterprises (MSME).  

AU SFB reported a 30% jump in its net profit to ₹502 crore for the first quarter ended 30 June as against a net profit of ₹387 crore in the year-ago period.

Net interest income (NII), which is the difference between the interest income a bank earns from its lending activities and the interest it pays to depositors, jumped 54%, to ₹1,920.5 crore as against ₹1,246 crore in the corresponding quarter of FY24.

The gross non-performing asset as a percentage of total loans was 1.78% in the June quarter against 1.67% in the March quarter.

Read more: Mint Explainer: The pros and cons of a UPI block mechanism from stockbrokers