Small finance banks eye talent at larger peers to go big

Mumbai: India’s small finance banks (SFBs) are starting to think beyond their niche. As a handful of these lenders prepare for a possible transition to universal banking, they are stepping up senior hiring from larger banks and non-bank financiers to strengthen leadership and scale businesses, said two people aware of the developments.

The move highlights how, over a decade after the Reserve Bank of India (RBI) opened the door to small finance bank licences, parts of the sector are gearing up for a more complex phase of growth, one where talent depth and managerial capability could prove as critical as rapid balance-sheet expansion.

The people cited above said AU Small Finance Bank, Ujjivan Small Finance Bank, Suryoday Small Finance Bank and Utkarsh Small Finance Bank are looking to onboard senior executives, including key business officers, vice-presidents and executive vice-presidents.

Spokespersons for AU, Utkarsh, and Ujjivan declined to comment.

A spokesperson for Suryoday Small Finance Bank said that on role-mapping, the bank is prudent in offering positions—usually not more than two levels above a candidate’s current role. “Customer base handled, geographic scope, and team span are key factors in determining seniority fit,” the spokesperson said.

According to Suryoday’s spokesperson, while there have been isolated instances where increments exceed 20%, these cases are limited and typically structured with a balanced mix of immediate and long-term components

Awaiting nod

While RBI gave a conditional nod to AU Small Finance Bank’s transition plan for universal banking in August, it is yet to disclose what it thinks of Ujjivan Small Finance Bank’s proposal submitted in February.

“The talent demand in SFBs is for building product, technology, sales leadership and for strengthening management, for which we are hiring from NBFCs and banks,” said Upasana Agarwal, partner, professional and financial services at ABC Consultants, a talent advisory firm.

Agarwal said candidates from bigger banks are willing to consider moving to small finance banks due to a potential elevation, both in compensation and role. For instance, a senior-vice president of finance in a bank will fit into a chief financial officer role at these small finance banks.

The aggressive hiring by small finance banks is also reflected in the numbers released by RBI in December. In 2025, a year in which public sector banks added net 1,626 people and private sector banks shrunk their staff strength by 7,257, while small finance banks added 26,736 employees. Although this growth came on a base lower than larger lenders, both public and private, it is sizable, given that these banks added 18% to their workforce.

Transition guidelines

In its guidelines that paved the way for SFB licences in 2014, RBI had set out a transition path for such banks to upgrade to larger banks. This was subject to the SFBs fulfilling minimum norms around paid-up capital, track record of performance, and the regulator’s due diligence.

Ten years later, the regulator published eligibility criteria for SFBs to transition to universal banks. It said only the listed SFBs could qualify for a universal banking licence. Those intending to convert must have a minimum net worth of ₹1,000 crore, a “satisfactory track record" of at least five years, and a net profit in the last two financial years.

“These banks know that to hire from universal banks, they will have to pay up and many are preparing to become universal banks themselves, which would mean branch expansion and more people at various levels,” said Veinu Nehru, managing partner at Fynehand Consultants, a talent advisory firm.

Nehru said recruiters are approaching mid-sized banks and non-banking financial companies (NBFCs); hiring from other banks has advantages that include similarity in products and services. “Apart from a bump up in salaries, small finance banks are offering bigger roles to these candidates. That is expected to compensate for these candidates moving from a larger to a smaller institution,” said Nehru.

Small finance banks are not just scouting talent for senior roles, but are also looking at junior ones. “There has been a 30% increase in hiring in the junior levels by SFBs, who are expanding in a large scale. They are recruiting sales executives typically from other banks and NBFCs” Aditya Narayan Mishra, managing director and chief executive officer, talent solutions firm CIEL HR.

SFBs — the idea, the progress

Conceptualized by a committee headed by RBI's former board member Nachiket Mor in 2014, SFBs were set up to undertake basic banking activities such as accepting deposits and lending to the unserved and underserved sections, including small businesses and small farmers. Universal banks need to lend 40% of their total loans towards the priority sector, instead of the 60% applicable to small finance banks.

Small finance banks have been able to get a quick foothold in the domestic market. According to Care Ratings, between FY22 and FY25, these banks recorded a 28% compounded annual growth rate in deposits and a 25% growth in advances, significantly higher than the industry averages of 12% and 16%, respectively.

However, low-cost deposits remain a challenge for them. As per Care Ratings, small finance banks' current and savings account, or Casa, deposits were at 26.2% of the overall deposits as of March 2025. This was lower compared to the universal banks, leading to a higher cost of funds at 7.3%, as against 5.3% for the overall banking sector. Casa deposits are a bank's cheapest source of funds.