**AU Small Finance Bank Receives Approval to Become Universal Bank**
India’s AU Small Finance Bank has secured ‘in-principle’ approval from the banking regulator to transition into a universal bank, marking the first issuance of a full-fledged banking license in nearly a decade. The bank applied for this license in September 2024, which will enable it to broaden its operations, including the ability to issue larger loans, attract more customers, and establish subsidiaries—capabilities that are restricted for small finance banks.
The Reserve Bank of India (RBI), the country’s banking regulator, initially set forth guidelines for small finance banks to evolve into full-fledged banks in 2014, later refining these criteria in April of the previous year. The updated guidelines stipulate that banks must demonstrate a five-year track record of satisfactory performance, maintain a net worth of 10 billion rupees (approximately $114 million), fulfill capital requirements, show recent profitability, and keep non-performing assets to a minimum.
The last banking license granted by the RBI was in 2015 to Bandhan Bank, which was then a microfinance institution based in Kolkata. For the quarter ending June 30, AU Small Finance Bank reported a 16% year-on-year increase in net profit, reaching 5.81 billion rupees. However, its gross bad loans as a percentage of total loans rose to 2.47%, compared to 1.78% the previous year.
As AU Small Finance Bank embarks on this new chapter, it is poised to enhance its service offerings and strengthen its position in the competitive banking landscape.
**FAQ**
*What does the transition to a universal bank mean for AU Small Finance Bank?*
The transition allows AU Small Finance Bank to expand its lending capabilities, attract a broader customer base, and create subsidiaries, enhancing its overall operational scope and competitiveness in the banking sector.
