How AU Small Finance Bank Got Its Universal Bank License

Introduction

AU Small Finance Bank AU SFB based out of Jaipur has scripted a never before journey —From a small finance bank to becoming the first ever Small Finance Bank in India to get in-principle approval to transition into Universal Bank. The milestone underlines a strong fundamental performance of its business and positions it in India's banking landscape.

1. Understanding the RBI’s SFB-to-Universal Bank Pathway

RBI in the year 2016 issued “on tap” licensing guidelines permitting Small Finance Banks to voluntarily transit into Universal Banks subject to compliance with stringent conditions.

The April 2024 revision furthermore provided a more detailed framework of eligibility requirements:

Listed entity
At least ₹1,000 crore net worth
A minimum of five-year sound history
Profits for the past two years
LOW ASSET-QUALITY RISK (GROSS NPA, NET NPA ≤ 3%, 1%)

2. Why AU SFB Stood Out

By April 2024, after buying Fincare SFB, AU stood out as the only SFB that met all the requirements, including:
Net worth of almost ₹15,000 crore
Making money from its operations
NPAs under control and below what regulators allow
A combined balance sheet of about ₹1.25 lakh crore with more than 10 million customers Fortune India
Its mix of different tough assets—with less than 10% in microfinance—made its case even stronger.

3. Application & RBI’s In-Principle Nod

AU submitted its formal application to the RBI on 3 September 2024, utilizing the 2016 and 2024 regulatory frameworks
After thoughtful evaluation, on 7 August 2025, the RBI granted in-principle approval, making AU the first SFB in a decade to win this distinction
The RBI’s approval was described as recognition of AU’s disciplined growth, sound governance, and expansive readiness

4. What the Transition Enables

Lower Funding Costs: AU might cut funding costs by around 30 basis points as a universal bank since the perceived risk falls.
Better Lending Flexibility: PSL norms shift down from 60 percent (SFB) to 40 percent (universal bank) letting AU lend more to mid-market businesses and higher-yield corporates.
Expanded Services: AU gets to provide full corporate, investment, and treasury banking services pushing its franchise to the next level.

5. Recent Financial Performance of AU Small Finance Bank

AU SFB FY25 Highlights

Net profit surged by 37%, reaching ₹2,106 crore (up from ₹1,535 crore in FY24) source.
Total assets grew 44% YoY to approximately ₹1.58 lakh crore; gross NPA rose modestly to 2.28% and net NPA to 0.74% source.
Capital Adequacy Ratio improved to 20.06%, bolstered by Fincare merger source.

Q1 FY26 (June 2025 Quarter)

Net profit rose 16% YoY to ₹581 crore; total income increased to ₹5,189 crore (from ₹4,278 crore) source.
Net interest income (NII) climbed to ₹2,045 crore, while interest earned rose to ₹4,378 crore
Pre-provision operating profit (PPOP) jumped sharply to ₹1,312 crore (from ₹952 crore)
Asset quality showed stress: gross NPA increased to 2.47%, net NPA to 0.88%, provisions nearly doubled to ₹533 crore, PCR at 83%, and CAR slipped slightly to 19.42% source.
Other income, driven by treasury gains, grew significantly; NIM declined slightly; ROA and ROE remained healthy (ROA: ~1.5%, ROE: ~13.3%) source.

In summary, AU Small Finance Banks' evolution into a universal bank rests on:

Meeting strict RBI eligibility norms around capitalization, governance, and asset quality source.
Being the only SFB fully compliant as of early 2024 source.
Submitting a timely application (Sept 2024) and receiving in-principle approval in Aug 2025 source.
Realizing strong financial traction, with double- and triple-digit growth in net profit and income, even while managing rising NPAs source.

Conclusion

AU Small Finance Bank's emergence as a universal bank is not only monumental for the bank but for the Indian financial industry! AU's commitment to prudent growth, active mergers, and strong commitment to execution have enabled AU’s achievement. With both the in-principle approval strategy in hand and a positive Q1 FY26, AU is in an excellent position to take a more prominent role that will accomplish its corporate banking mission, new product offerings, and embarking on its next growth chapter.

What is AU-SFB?

Is AU-SFB a Universal Bank?

Yes Recently AU-SBF got a Universal Bank licence by RBI.Here is the Cretria for Universal Bank Licence.RBI in the year 2016 issued “on tap” licensing guidelines permitting Small Finance Banks to voluntarily transit into Universal Banks subject to compliance with stringent conditions. The April 2024 revision furthermore provided a more detailed framework of eligibility requirements: Listed entity At least ₹1,000 crore net worth A minimum of five-year sound history Profits for the past two years LOW ASSET-QUALITY RISK (GROSS NPA, NET NPA ≤ 3%, 1%)

Recent Financial Performance of AU Small Finance Bank?

Q1 FY26 (June 2025 Quarter) Net profit rose 16% YoY to ₹581 crore; total income increased to ₹5,189 crore (from ₹4,278 crore) source. Net interest income (NII) climbed to ₹2,045 crore, while interest earned rose to ₹4,378 crore Pre-provision operating profit (PPOP) jumped sharply to ₹1,312 crore (from ₹952 crore) Asset quality showed stress: gross NPA increased to 2.47%, net NPA to 0.88%, provisions nearly doubled to ₹533 crore, PCR at 83%, and CAR slipped slightly to 19.42% source. Other income, driven by treasury gains, grew significantly; NIM declined slightly; ROA and ROE remained healthy (ROA: ~1.5%, ROE: ~13.3%) source. .

How AU Small Finance Bank Got Its Universal Bank License