Synopsis: AU Small Finance Bank has received in-principle approval from the RBI to convert into a universal bank, signaling a significant step towards expansion and service diversification. Here's a look at what a universal banking licence means and the eligibility norms laid out by the RBI.
AU SFB Gets RBI Nod: What It Takes to Become a Universal Bank
In a significant development for the Indian banking sector, AU Small Finance Bank (AU SFB) has secured in-principle approval from the Reserve Bank of India (RBI) to transition into a universal bank. The move, which follows the bank’s formal application on September 3, 2024, is expected to enhance its capabilities and expand its range of financial services.
A universal banking licence allows a financial institution to offer a comprehensive suite of financial services—including commercial lending, investment products, credit cards, mutual funds, and large business loans—under one roof. This eliminates the need for customers to approach multiple institutions, improving efficiency and convenience.
The RBI introduced the “on-tap” licensing system in August 2016, enabling eligible institutions to apply for a universal banking licence at any time.
RBI's Eligibility Norms for Universal Bank Licensing:
- Individuals & Professionals: Must be Indian residents with at least 10 years of senior experience in banking and finance.
- Entities/Groups: Private sector firms owned and controlled by Indian residents with a proven track record of 10+ years. However, large industrial houses can only hold up to a 10% stake and are not eligible to operate banks.
- NBFCs: Resident-controlled NBFCs with over 10 years of successful operations may apply, provided they meet the stipulated financial and governance benchmarks.
RBI's Conditions for Small Finance Banks (SFBs) to Convert:
- Must have a minimum net worth of ?1,000 crore
- Must hold scheduled bank status
- Must show five years of satisfactory performance
- Must maintain Gross NPA ? 3% and Net NPA ? 1% in the last two fiscal years
- Must be listed on recognised stock exchanges
The transition from an SFB to a universal bank represents a major opportunity for banks like AU SFB to diversify offerings and scale up operations. Analysts believe this approval not only validates AU SFB’s operational strength but also sets the stage for broader financial inclusion and more competitive banking services.
Disclaimer: This article is for general informational purposes only. It does not constitute financial or legal advice. Readers are encouraged to consult financial experts or the RBI’s official guidelines for more detailed information.
