Money & Banking

AU Small Finance Bank may convert to a universal bank

K Ram Kumar Mumbai | Updated on July 25, 2021

This will be its second transition

Jaipur-headquartered AU Small Finance Bank may transition to a universal bank, going by its Chairman Raj Vikash Verma’s letter to shareholders.

If this happens, it will be the second transition for the lender. Before it converted into an SFB in 2017, AU was a non-banking finance company -- Au Financiers (India) Ltd.

Verma observed that the bank is looking far and beyond the current status of the bank in the SFB space.

“We are propelling the bank’s journey to the next important milestone in the bigger banking space, with an aspiration to serve all sectors and segments of the economy under the larger agenda of national development and growth,” he said.

SFB

SFBs are niche banks. Their scope of activities is restricted to undertaking basic banking activities of acceptance of deposits and lending to unserved and underserved sections including small business units, small and marginal farmers, micro and small industries and unorganised sector entities.

A universal bank’s scope of activities is much wider, spanning retail banking (retail, agriculture and micro, small and medium enterprises), wholesale (corporate) banking and infrastructure/project financing.

As per the Report of the Reserve Bank of India’s “Internal Working Group (IWG) to Review Extant Ownership Guidelines and Corporate Structure for Indian Private Sector Banks”, if an SFB aspires to transit into a universal bank, such transition will not be automatic.

Transition

The transition would be subject to fulfilling minimum paid-up capital/net worth requirement as applicable to universal banks; its satisfactory track record of performance as an SFB and the outcome of the Reserve Bank’s due diligence exercise.

The initial minimum paid-up voting equity capital for starting a universal bank is ₹500 crore, according to RBI’s guidelines for ‘on tap’ licensing of universal banks in the private sector.

The IWG has recommended that the initial paid-up voting equity share capital/net worth required to set up a new universal bank be increased to ₹1,000 crore.

As of March-end 2021, AU SFB had gross advances and deposits aggregating ₹35,356 crore and ₹35,979 crore, respectively.

The Bank’s loan portfolio mainly comprises vehicle loans, secured business loans (SBL) to MSMEs and housing loans.

AU SFB currently has a presence across 15 States and two Union Territories through 552 bank branches, 177 Business Correspondent Banking Outlets, 15 Business Correspondents and 343 ATMs.

Published on July 24, 2021

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