Shares of AU Small Finance rise as lender applies for universal banking licence

Applicants must have a minimum net worth of Rs 1,000 crore, scheduled status, and a satisfactory track record of at least five years. Additionally, they must have been profitable with gross non-performing assets (NPAs) of less than 3 percent and net NPAs of less than 1 percent over the previous two financial years, meet capital adequacy requirements, and provide a clear rationale for the transition.

ALSO READ: AU Small Finance applies for 'voluntary transition' to a Universal Bank

Conversion to a universal bank is seen as a significant step for many SFBs, which feel constrained by geographical limitations and lending caps. Currently, SFBs must allocate at least 75 percent of their loans to amounts below Rs 25 lakh, and maintain at least 25 percent of their branches in underserved rural areas. In contrast, universal banks face no such restrictions, though they must still ensure that 40 percent of their loans are directed towards priority sectors like agriculture and MSMEs.

In the recently concluded June quarter, AU SFB reported a 30 percent year-on-year increase in net profit to Rs 502 crore, while net interest income rose 54 percent YoY to Rs 1,920 crore.

So far this year, shares of AU SFB declined over 13 percent, as against benchmark Nifty 50's 16 percent surge.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.