Recently, the Reserve Bank of India (RBI) has granted AU Small Finance Bank (AU SFB) a Universal Bank License in 2025.

• This is the first such license in a decade, allowing a Small Finance Bank to upgrade into a full-fledged Commercial Bank.

About Universal Bank License

• Definition: A banking license issued by the RBI that permits an entity to operate as a full-service commercial bank, offering the complete range of banking products and services to all customer segments.
  • A commercial bank is a financial institution that accepts deposits from the public, provides loans, and offers various financial services such as payment processing, credit facilities, and investment products, primarily for profit.
    • Example: State Bank of India (SBI), HDFC Bank, Punjab National Bank (PNB).
• Eligibility: Typically granted to entities meeting capital adequacy, governance, and financial health norms set by RBI.
• Powers Granted:
  • Can accept all types of deposits (savings, current, fixed, recurring).
  • Can offer loans to all segments (retail, corporate, MSME, agriculture).
  • Can participate in foreign exchange, derivatives, and investment banking activities, subject to RBI guidelines.

Eligibility Criteria for an SFB to Transition into a Universal Bank

• Status: Must have Scheduled Bank status for at least five years.
• Stock Listing: Shares must be listed on a recognised stock exchange.
• Net Worth: Minimum ₹1,000 crore.
• Financial Health:
  • Profitability: Net profits in the last two financial years.
  • Asset Quality: Gross Non-Performing Assets (G-NPA) ≤ 3% and Net Non-Performing Assets (N-NPA) ≤ 1% in the last two FYs.
• Promoter Stability: No addition or change in promoters during the transition.
• Portfolio Diversification: Preference for banks with a diversified loan portfolio.

About AU Small Finance Bank (AU SFB)

• Founded: 1996 as AU Financiers (India) Ltd, a Non-Banking Financial Company (NBFC).
• SFB License: Received in 2015; commenced operations as SFB in 2017.
• Headquarters: Jaipur, Rajasthan.
• Specialisation: Strong presence in rural and semi-urban areas, focusing on financial inclusion.

About Small Finance Banks (SFBs)

• Genesis: Announced in the Union Budget 2014–15.
• Objective: Promote financial inclusion by serving underserved and unserved sections.
• Registration: As a public limited company under the Companies Act, 2013.
• Licensing & Regulation: Under the Banking Regulation Act, 1949.
• Minimum Capital Requirement: ₹200 crore (with exceptions for certain SFBs).
• Eligible Promoters: Resident individuals/professionals with at least 10 years of experience in banking and finance.

Comparative Table – Small Finance Banks (SFBs) vs Universal Banks

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