AU Small Finance Bank Seeks Universal Bank Licence From RBI

AU Small Finance Bank Ltd. submitted an application to the Reserve Bank of India on Tuesday to seek approval for voluntary transition from a small finance bank to a universal bank, according to an exchange filing.

The development came after Chief Executive Officer Sanjay Agarwal had said during an earnings call for the June quarter that the bank's board decided to file an application for the universal bank. The board constituted the committee under Chairperson HR Khan and Agarwal to review the application.

A small finance bank must have a satisfactory track record of performance for a minimum period of five years. Its shares must be listed on a recognised stock exchange and should have a minimum net worth of Rs 1,000 crore at the end of the audited previous quarter, according to the RBI's guidelines for conversion into a universal bank from a small finance bank.

The bank should meet the prescribed capital-to-risk-assets ratio requirements of 15% for small finance banks. A small finance bank must also have a net profit in the last two financial years and a gross non-performing assets and net bad loan ratio of below or equal to 3% and 1%, respectively, in the same period.

The net worth of AUSFB surpassed Rs 12,000 crore at the quarter ended June. During this period, the bank's net profit rose 30% to Rs 503 crore.

Its asset quality increased slightly in the first quarter but remained healthy overall, with the gross NPA expanding 12 basis points to 1.78% and the net NPA widening 7 basis points to 0.63% a quarter ago. AUSFB's CRAR was 20.1% at the end of the June quarter.

The step towards universal banking licence has come as the small finance bank recently merged Fincare Small Finance Bank Ltd. with itself. This merger came into force on April 1.

During the first-quarter earnings call, Agarwal had said that the bank was already competing with mid-sized universal banks given its term deposits and savings account rates were almost at par with them.

Agarwal had also said that after it gets approval for a universal bank, it will be called AU Bank.

While the bank may not change its banking strategy after the transition, Agarwal had said that building more deposit franchises in urban areas would continue.

"Our acceptance will move up; our brand acceptance will move up. And there are a there are a lot of other areas in which we are not, as of now, like -- we are not at all in our corporate salary accounts. We are not much in our NRI deposit built up; our AD-1 licence has just come in; the entire export community will also get this to us," he had said.

Further, RBI guidelines also said that there is no mandatory requirement for an eligible small finance bank to have an identified promoter but existing promoters should continue on transition for a universal bank.

The addition of new promoters or change in promoters would not be allowed for an eligible SFB while transitioning to Universal Bank, the RBI said. There would be no new mandatory lock-in requirement of minimum shareholding for existing promoters in the transition.

Lastly, there would be no change to the promoter shareholding dilution plan already approved by the central bank and eligible SFBs having a diversified loan portfolio would be preferred, it said.