AU Small Finance Bank to apply for universal bank licence in about a month

AU Small Finance Bank

AU Small Finance Bank will apply for the universal banking licence to the Reserve Bank of India (RBI) in about a four weeks, Sanjay Agarwal, MD and CEO of the bank, told Moneycontrol in a post-results interview.

“We have received approval from the board and it was widely expected. So, after this, we have decided to apply in the next four weeks or by August-end,” Agarwal told Moneycontrol.

On April 26, Moneycontrol exclusively reported that the board of directors of AU Small Finance Bank will soon discuss the plan for seeking a universal bank licence to the Reserve Bank of India (RBI).

Agarwal revealed during the interaction with Moneycontrol that the board had given its go-ahead to the proposal on July 25.

As per the guidelines, the eligibility criteria for a small finance bank to transition into a universal bank is that it must have a satisfactory track record of performance for a minimum period of five years, is listed on the exchanges, and has a minimum net worth of Rs 1,000 crore as at the end of the previous quarter, the RBI said in a release.

The small finance bank has met the prescribed compound annual growth rate (CRAR) requirements, net profit in the last two financial years; and gross non-performing assets (NPA) and net NPA of less than or equal to 3 percent and 1 percent in the last two financial years, the release said.

The regulator doesn't not mandatorily require an SFB to have an identified promoter. However, the existing promoters of the eligible SFB, if any, need to continue as the promoters on the transition to universal bank.

Also, the addition of new promoters or change in promoters need not be permitted for an eligible SFB while transitioning to universal bank, the RBI said.

The RBI said there shall be no new mandatory lock-in requirement of minimum shareholding for existing promoters in the transitioned universal bank.

Also, there shall be no change to the promoter shareholding dilution plan already approved by the Reserve Bank, the central bank said, adding that eligible SFBs having diversified loan portfolios will be preferred.

However, it while be interesting to see if the banking regulator gauges an SFB's chances to convert into an universal bank strictly based on these criteria. To be sure, going by precedence, the 'fit and proper' examination for a banking licence has been at the discretion of the RBI.

As an enabling measure, the board of the bank in June approved a plan of raising up to Rs 5,000 crore by selling equities and mobilising up to Rs 6,000 crore in debt. However, Agarwal dismissed the need to raise equity capital in the near-term.

"The bank does not have any requirement to raise funds through qualified institutions placement (QIP), for which the lender has taken approval in June," he asserted.