The Reserve Bank of India (RBI) has granted 'in-principle' approval to AU Small Finance Bank to transition into a universal bank.

The last such full-fledged banking licence issued by the RBI was in 2015 to Kolkata-based microfinance firm Bandhan Bank.

AU Small Finance Bank had applied for the licence in September 2024.

A universal bank licence status will allow AU SFB to issue bigger loans, take on more customers and float subsidiaries. These fall under many restrictions for small finance banks (SFBs).

After issuing guidelines for SFBs to transition into full-fledged banks in 2014, the RBI updated them in April last year.

These included a five-year track record of satisfactory performance, a minimum net worth of Rs 1,000 crore, meeting capital requirements, a net profit for the last two financial years and listing on a recognised stock exchange. The gross bad loans and net non-performing asset (NPA) should be less than or equal to 3% and 1% respectively, in the last two financial years.

For the quarter ended 30 June, AU SFB reported a 16% year-on-year growth in net profit to Rs 581 crore, while its gross NPA as a percentage of total loans stood at 2.47% compared to 1.78% a year earlier. Net NPA was at 0.88% versus 0.63% in the year-ago period.

AU Financiers, founded by Sanjay Agarwal in 1996 as a retail-focused non-banking finance company (NBFC), got the SFB licence in 2015. It started operations as a SFB in April 2017.

AU SFB has a network of over 2,505 banking touchpoints across 21 states and 4 Union Territories. It has a customer base of over 1.15 crore and a workforce of more than 53,000 as of 30 June 2025. The bank’s shareholders’ funds stood at Rs 17,800 crore, with a deposit base of Rs 1.28 lakh crore, loan portfolio of Rs 1.18 lakh crore, and a balance sheet of over Rs 1.60 lakh crore.