The Reserve Bank of India, in a cautious move, declined Annapurna Finance Limited’s application for a universal bank license made in January 2023. The regulator, expressing hesitation about awarding a full-service bank license to the Odissa-based lender, largely focusing on microfinance loans, gave Annapurna Finance the option to become a small finance bank.

However, it is gathered from sources with knowledge of the development that Annapurna had declined the alternative put forth by the regulator. “Annapurna’s idea was to become a universal bank because it could permit them to operate in businesses much more than what they are doing. As an SFB, the company doesn’t see much of incremental value proposition and given how a majority of SFBs are still yet to take a dominant share in the industry, didn’t want to try that route,” said a source quoted earlier. It is understood that the same has been communicated to the regulator.

Dibyajyoti Pattanaik

Dibyajyoti Pattanaik

When contacted, Dibyajyoti Pattanaik, the company’s director, said, “we have no idea about this matter, and we have not received any communication from RBI in this regard.”

Recently, Piramal Alternatives Trust, a wholly-owned subsidiary of Piramal Enterprises, announced that it will acquire a 10.4 per cent stake in Annapurna Finance for ₹300 crore of cash consideration.

Point of discomfort

Despite nine years of operations as a universal bank, Bandhan Bank’s loan book is heavily tiled towards microfinance loans. Taking a cue from Bandhan’s experience, there were concerns raised about Annapurna’s ability to diversify its loan book beyond MFI. With such high MFI exposure, Mint Street officials may have likely considered SFB a better option compared to universal bank for Annapurna Finance. The share of MFI loans stood at 87 per cent as on December 31, 2023. However, in terms of geographical presence, the share of loans originating from Odisha was 18.2 per cent, with Bihar (18.3 per cent) and Madhya Pradesh (15.2 per cent) emerging as strong markets outside the home.