AU Small Finance Bank Receives Universal Banking License, A First In A Decade For India

In a landmark development for the country's banking sector, AU Small Finance Bank has been granted the Reserve Bank of India's (RBI) in-principle approval to transition into a universal bank — making it the first such upgrade in nearly a decade. The Jaipur-based lender had submitted its application in September 2024.

With the RBI’s green signal, the Sanjay Agarwal-founded entity is now poised to broaden its banking operations significantly. Once the final nod is secured, the bank will be allowed to issue larger loans, serve a broader customer base, and establish subsidiaries — all of which are currently restricted under the framework governing small finance banks.

This regulatory milestone comes nearly 10 years after the last universal banking licence was issued by the RBI. It was granted to Kolkata-based Bandhan Bank, which transitioned from a microfinance institution to a universal bank in 2015.

The RBI’s nod follows revised guidelines introduced in April 2024, which laid down strict eligibility criteria for such transitions. In order to be eligible for a transition into a universal bank, an institution must demonstrate a minimum five-year track record of satisfactory performance. And is required to maintain a net worth of at least Rs 10,000 crore.

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AU Small Finance Bank Limited is a homegrown scheduled commercial small finance bank, which was was founded in 1996 as a vehicle finance company and was converted into a small finance bank in 2017. The same year, it got listed on National Stock Exchange (NSE) and Bombay Stock Exchange (BSE)

As a small finance bank, AU Small Finance Bank serves low- and middle-income individuals and micro and small businesses that have limited or no access to formal banking and finance channels. The bank also offers loans, deposits and payment products and services

For the quarter ending June 30, 2025, the bank reported a 16% year-on-year rise in net profit, reaching Rs 581 crore. Its gross NPAs stood at 2.47% of total advances — up from 1.78% a year ago but still within manageable limits.