AU Small Finance Bank Limited to transit into a Universal Bank.

The Reserve Bank of India has decided to grant ‘in-principle’ approval to AU Small Finance Bank Limited (AUSFB), for transitioning from a Small Finance Bank (SFB) to a Universal Bank.

It is most worthy stating, that the Guidelines for licensing of Small Finance Banks (SFB’s) in the Private Sector dated November 27, 2014 had provided a transition path for SFBs to convert into Universal Banks subject to the SFB’s fulfilling minimum paid-up capital / net worth requirement as applicable to Universal Banks, satisfactory track record of performance as an SFB for a minimum period of five years and RBI’s due diligence exercise.

Further, with the objective of bringing better clarity, the eligibility criteria for an SFB to transition into a Universal bank were detailed in the Circular issued on April 26, 2024 on “Voluntary transition of Small Finance Banks to Universal Banks”.

With the objective of bringing better clarity, the eligibility criteria for an SFB to transition into a Universal bank will now be as follows:

• Scheduled status with a satisfactory track record of performance for a minimum period of five years;

• Shares of the bank should have been listed on a recognised stock exchange;

• Having a minimum net worth of ₹1,000 crore as at the end of the previous quarter (audited);

• Meeting the prescribed CRAR requirements for SFBs;

• Having a net profit in the last two financial years; and

• Having GNPA and NNPA of less than or equal to 3% and 1% respectively in the preceding two financial years.

The following conditions shall be applicable with regard to shareholding pattern:

• There is no mandatory requirement for an eligible SFB to have an identified promoter. However, the existing promoters of the eligible SFB, if any, shall continue as the promoters on transition to Universal Bank.

• Addition of new promoters or change in promoters shall not be permitted for an eligible SFB while transitioning to Universal Bank.

• There shall be no new mandatory lock-in requirement of minimum shareholding for existing promoters in the transitioned Universal Bank.

• There shall be no change to the promoter shareholding dilution plan already approved by the Reserve Bank.

• The eligible SFBs having diversified loan portfolio will be preferred.

The Reserve Bank had adopted the necessary procedure in deriving its decisions; An External Advisory Committee (EAC) comprising eminent professionals like bankers, chartered accountants, finance professionals, has evaluated the applications.

The validity, of the “In-Principle approval” issued by the Reserve Bank, will be for eighteen months.

The names of applicants for bank licences will be placed on the Reserve Bank’s website.

Team Maverick