MC Explains: What is Annapurna Finance which has applied for a universal banking licence from RBI?

The Reserve Bank of India (RBI) on January 4 said that it received an application from Annapurna Finance Private Limited (AFPL), under the guidelines for "on tap" licensing of universal banks in the private sector.

The Bhubaneswar-based microfinance institution (MFI) was the only entity to apply for a universal bank licence during the quarter ended December 31, 2022.

What is Annapurna Finance?

Formerly known as Annapurna Microfinance Pvt Ltd, AFPL is a non-banking financial company (NBFC) involved in micro-financing to MSMEs, small industries and women SHGs alongside dispensing housing and individual loans.

The company, which registered itself as an NBFC-MFI with RBI in 2013, majorly serves economically backward customers.

Its list of products and services includes income generation group loans of up to Rs 1,00,000 to SHGs and joint liability groups (JLG).

The NBFC-MFI also provides MSME and housing loans of up to Rs 25,00,000.

The company also provides sector and need-specific lending services, majorly for economically backward customers.

Financial results

According to AFPL’s annual report for the year ended March 2022, the NBFC-MFI has operations in 20 states with 984 branches and a customer base of 2.3 million clients with a gross loan portfolio of Rs 6,553.4 crore.

The company recorded revenue from operations of Rs 1,147 crore and profit after tax of Rs 17.13 crore.

The net non-performing asset (NNPA) and gross NPA of the institution stood at 2.63 percent and 9.80 percent, respectively.

Universal banking licence with RBI

Under the RBI’s guidelines for "on tap" licensing of universal banks in the private sector, large industrial houses cannot apply for bank permits.

Further, under the fit and proper criteria, applicant promoters should have a past record of sound financials, credentials, and integrity, and have a minimum of 10 years of successful track record.

The RBI guidelines have also stipulated an initial minimum paid-up voting equity capital for a bank shall be Rs 500 crore. Thereafter, the bank shall have a minimum net worth of Rs 500 crore at all times.

Also, the promoter or holding company needs to hold a minimum of 40 percent of the paid-up voting equity capital of the bank with a lock-in period of five years.

Last year, the central bank found six applicants not suitable for permits of small finance bank licenses and universal bank licences after an examination.

The last time the RBI issued universal banking permits to banks was in 2015 when IDFC First Bank and Bandhan were given banking licences.