The RBI’s in-principle approval of AU Small Finance Bank’s conversion from a Small Finance Bank to a Universal Bank caused its shares to soar by more than 7% on 8 August. In the first trade, shares of AU Small Finance Bank surged up to 7.52% to INR 800.00 per share on the BSE.
First Small Finance Bank to Receive Universal Bank Licence Nod
The Reserve Bank of India (RBI) has given AU Small Finance Bank in-principle clearance to convert from a Small Finance Bank (SFB) to a Universal Bank, the bank announced in a regulatory filing on August 7.
The RBI’s approval follows the bank’s letter from September 3, 2024, asking the Indian Central Bank for a universal bank licence. AU Small Finance Bank is the first SFB to obtain in-principle approval to become a Universal Bank with this approval, which was obtained on August 7.
AU Bank’s Statement on RBI’s Decision
According to a press statement from AU Small Finance Bank, this regulatory approval is a powerful affirmation of AU’s competent governance, solid business strategy, and unwavering dedication to financial inclusion.
More significantly, it validates AU’s development as a comprehensive bank that provides the full range of banking services and products that modern consumers want, including business, retail, and digital solutions. On September 3, 2024, the lender submitted an application to the RBI to voluntarily convert from a Small Finance Bank to a Universal Bank.
Eligibility Criteria for Universal Bank Status
A Small Finance Bank (SFB) must maintain a minimum net worth of INR 1,000 crore, have a satisfactory performance history for at least five years, and be listed on stock exchanges in order to meet the requirements to become a Universal Bank.
Furthermore, in each of the previous two fiscal years, the SFB must have reported Net Non-Performing Assets (NNPA) of no more than 1% and Gross Non-Performing Assets (GNPA) of no more than 3%.
AU Bank’s Journey from Vehicle Finance to Full-Service Banking
In 1996, AU Bank was established as a vehicle finance firm, marking the beginning of its history. April 2017 saw its conversion to a small finance bank, and on July 10 of the same year, it went public on stock exchanges.
In FY25, their net profit was INR 1,592 crore, up from INR 1,428 crore in the previous fiscal year. INR 581 crore was the net profit for the fiscal year’s first quarter. By the end of June, its gross non-performing assets (NPA) had increased from 1.78% to 2.47%. Compared to 0.63%, net NPA was 0.88%.
AU Bank’s capital adequacy requirement would decrease from 15% upon becoming a universal lender, and the priority sector lending target would drop from 60% to 40%. Therefore, the requirement that at least 50% of the loan portfolio be made up of loans less than INR 25 lakh would also not be applicable.
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