RBI Clears AU Small Finance Bank's Leap to Universal Status
- AU Small Finance Bank becomes the first SFB in India to get RBI’s in-principle nod to become a Universal Bank.
- The lender holds India’s largest SFB loan book at over Rs 1 lakh crore, growing 23% in Q1 FY25.
- Analysts see the move expanding AU’s customer base, with brokerages maintaining bullish outlooks.
Shares of AU Small Finance Bank Ltd. are set to be in focus, after the lender became the first Small Finance Bank (SFB) in India to receive in-principle approval from the Reserve Bank of India (RBI) to transition into a Universal Bank. The landmark approval comes under the RBI’s 'On-tap' licensing guidelines issued in April last year.
AU SFB had applied for the license in September 2023, with the decision coming 11 months later. The move now paves the way for other SFBs, including Ujjivan Small Finance Bank and Jana Small Finance Bank, which have also applied for similar approvals Ujjivan in February and Jana in June this year.
As the largest SFB in the country, AU Small Finance Bank boasts a loan book exceeding Rs 1 lakh crore, registering a 23% year-on-year growth in the June quarter. Equitas Small Finance Bank stands second, with a loan book of Rs 38,000 crore.
Market analysts view the development as strategically significant. Goldman Sachs noted that the license offers AU SFB an opportunity to tap into a broader customer base, although the long-term payoff will depend on execution. The brokerage has maintained its 'buy' rating with a target price of Rs 979.
Investec echoed optimism, calling AU SFB its top pick among midcap banks and highlighting that the move eases concerns over the tenure extension of its promoter and CEO, Sanjay Agarwal.
On Thursday, AU Small Finance Bank shares gained 1.2% to close at Rs 744.1, contributing to the Nifty Bank index recovery. However, the stock remains down nearly 10% over the past month, paring its year-to-date gains to 30%.
The RBI nod marks a critical milestone in AU SFB’s growth journey, signaling a potential reshaping of India’s mid-sized banking landscape.
