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Indian Express
5 days ago
- Business
- Indian Express
Small Finance Bank transition to Universal Bank: A must-know for the UPSC Exam
Take a look at the essential events, concepts, terms, quotes, or phenomena every day and brush up your knowledge. Here's your UPSC Current Affairs knowledge nugget for today on transition from a small finance bank (SFB) to a universal bank. (Relevance: The topic of banking forms an important part of the UPSC CSE syllabus. Previously, questions have been asked on various dimensions of it; thus, knowing about the small finance banks becomes important.) The Reserve Bank of India has decided to grant 'in-principle' approval to AU Small Finance Bank Ltd. (AUSFB) for transitioning from a small finance bank (SFB) to a universal bank. The universal bank status will allow AU Bank to offer a wide range of financial services and products under one roof without many restrictions, unlike a small finance bank. In this context, let's understand what SFBs are and the criteria for transitioning into a universal bank. 1. The banking sector plays a key role in the function of the economy. Apart from commercial banks, the Indian economy has witnessed the rollout of some new banking models like payments and SFBs under the regulation of the Reserve Bank of India (RBI). 2. SFBs in India are a specific segment of banking created by RBI, under the guidance of the Government of India. The objective of setting up SFBs is to further financial inclusion by extending banking services to unserved and underserved sections of the population and supplying credit to small business units, small & marginal farmers, micro and small industries and other unorganised sector entities through high technology & low-cost operations. 3. The scope of activities of an SFB is primarily to undertake basic banking activities of acceptance of deposits and lending to unserved and underserved sections. In the Union Budget 2014-2015 presented on July 10, 2014, the Finance Minister announced that: 'RBI will create a framework for licensing small banks and other differentiated banks. Differentiated banks serving niche interests, local area banks, payment banks etc., are contemplated to meet credit and remittance needs of small businesses, unorganized sector, low income households, farmers and migrant work force'. Following the announcement, the RBI issued following guidelines for SFBs in November 2014: a. The minimum paid-up equity capital for small finance banks shall be Rs. 100 crore. b. SFBs are required to open at least 25% of their branches in unbanked rural centres. c. At least 50 per cent of its loan portfolio should constitute loans and advances of upto Rs. 25 lakh. d. Further, these banks are required to extend 75% of their adjusted net bank credit to the priority sector. According to the RBI, 'If the small finance bank aspires to transit into a universal bank, such transition will not be automatic but will be subject to fulfilling the minimum paid-up capital/net worth requirement as applicable to universal banks, its satisfactory track record of performance as a small finance bank, and the outcome of the Reserve Bank's due diligence exercise.' The eligibility criteria for an SFB to transition into a universal bank include: 1. Scheduled status with a satisfactory track record of performance for a minimum period of five years. 2. Listing on a recognised stock exchange and minimum net worth of Rs 1,000 crore as at the end of the previous quarter (audited). 3. Having a net profit in the last two financial years and gross Non-Performing Asset (NPA) and net NPA of less than or equal to 3 per cent and 1 per cent respectively in the last two financial years. 4. They should also meet the prescribed CRAR requirements for SFBs. 1. NBFC is a company registered under the Companies Act, 1956 or Companies Act, 2013, and engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by Government or local authority or other marketable securities of a like nature, leasing, hire-purchase, etc., as their principal business, but does not include any institution whose principal business is that of agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing any services and sale/purchase/construction of immovable property. 2. A non-banking institution which is a company and has principal business of receiving deposits under any scheme or arrangement in one lump sum or in installments by way of contributions or in any other manner, is also a non-banking financial company (Residuary non-banking company). 3. Notably, banks and NBFCs are different entities subject to different statutory and regulatory requirements. However, NBFCs lend and make investments and hence these activities are akin to that of banks. The major differences between banks and NBFCs are given below: i. NBFCs cannot accept demand deposits; ii. NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself; iii. Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation (DICGC) is not available to depositors of deposit taking NBFCs. Capital to risk weighted assets ratio is arrived at by dividing the capital of the bank with aggregated risk weighted assets for credit risk, market risk and operational risk. The higher the CRAR of a bank the better capitalized it is. NBFCs can accept deposits from NRIs subject to compliance with Foreign Exchange Management (Deposit) Regulations 2016 (as amended from time to time) and also subject to the condition that the rate of interest on these deposits shall not exceed the rate specified by the Reserve Bank for such deposits with scheduled commercial banks What is/are the eligibility criteria for an SFB to transition into a universal bank according to the RBI? 1. Scheduled status with a satisfactory track record of performance for a minimum period of three years. 2. Listing on a recognised stock exchange and minimum net worth of Rs 1,000 crore as at the end of the previous quarter (audited). 3. Meet the prescribed CRAR requirements for SFBs. 4. Having a net profit in the last two financial years and gross NPA and net NPA of less than or equal to 3 per cent and 1 per cent respectively in the last two financial years. Select the correct answer using the codes given below: (a) 1 and 4 only (b) 1, 2 and 4 (c) 2 and 3 only (d) 2, 3 and 4 (Sources: AU Small Finance Bank gets RBI nod to become universal bank) You are invited to the next Express with Uttam Kumar Sinha, Senior Fellow at Manohar Parrikar-IDSA and Managing Editor of Strategic Analysis in conversation with Amitabh Sinha, Editor, Climate and Science, The Indian Express. Date:- June 13, 2025 l Time:- 6:00 P.M.|Place:- Zoom Topic- Indus Waters Treaty Join Now: Subscribe to our UPSC newsletter. Stay updated with the latest UPSC articles by joining our Telegram channel – Indian Express UPSC Hub, and follow us on Instagram and X. 🚨 Click Here to read the UPSC Essentials magazine for July 2025. Share your views and suggestions in the comment box or at Roshni Yadav is a Deputy Copy Editor with The Indian Express. She is an alumna of the University of Delhi and Jawaharlal Nehru University, where she pursued her graduation and post-graduation in Political Science. She has over five years of work experience in ed-tech and media. At The Indian Express, she writes for the UPSC section. Her interests lie in national and international affairs, governance, economy, and social issues. You can contact her via email: ... Read More
India.com
10-08-2025
- Business
- India.com
Meet Sanjay Agarwal, brain behind AU Small Finance Bank, India's biggest..., his net worth is Rs...
Sanjay Agarwal (File) Building a successful banking venture is not as an easy task for finance entrepreneurs, especially in India, where the banking sector is dominated by large banks owned by giant corporations and the state. However, Sanjay Agarwal, the man who recently got the nod from RBI for India's newest universal bank, not only built a small yet successful small finance venture, but transformed it into the country's biggest Small Finance Bank (SFB). Who is Sanjay Agarwal? Born in Rajasthan, Sanjay Agarwal earned a Bachelors Degree in Commerce from Government College, Ajmer, and later aced the CA exam from the from the Institute of Chartered Accountants of India, to become a Chartered Accountant. Agarwal's academic excellence was recognized by the institute, who awarded him a gold medal for his topping the CA exam in 1995. After acing the CA exam, Sanjay Agarwal, instead of joining some major finance firm, decided to launch his own finance venture which would cater to the financial needs of people living in Rajasthan's rural and semi-urban areas, where banking facilities were unavailable at the time. How AU Small Finance Bank was born? In 1996, a year after he cleared the CA exam, Sanjay Agarwal launched Au Financiers, small finance venture aimed at catering to unbanked rural and semi-urban population in Rajasthan. Over the years, Au Financiers, which began as a humble vehicle finance firm, grew into the AU mall Finance Bank (SFB), the largest small finance bank in India. Sanjay Agarwal currently serves as the Managing Director and CEO of the AU Small Finance Bank, and was honored with the 2018 Ernst & Young Entrepreneur of the Year Award for his contribution in the banking and finance sector. India's newest commercial bank Under Sanjay Agarwal's leadership, AU Small Finance Bank has now transitioned into a full-service commercial bank after receiving 'in-principle' approval from the Reserve Bank of India on August 7, 2025– the first in almost a decade– to become a Universal Bank. Bandhan Bank was the last financial institution to receive this approval from RBI in 2015. AU SFB's transition into a full-fledged universal bank is a nod to the years of dedicated growth and trust the institution has built under the leadership of Sanjay Agarwal. Sanjay Agarwal net worth According to Forbes, Sanjay Agarwal has a net worth of $1.3 billion (about Rs 11,500 crore), making him one of the wealthiest individuals in India.
Mint
08-08-2025
- Business
- Mint
AU Small Finance Bank share price jumps over 7% on receipt of RBI approval for Universal Bank license
AU Small Finance Bank share price jumped over 7% in early trade on Friday after the private lender announced the receipt of approval from RBI for transition to a universal bank. AU Small Finance Bank shares rallied as much as 7.52% to ₹ 800.00 apiece on the BSE in the opening trade. In a regulatory filing on August 7, AU Small Finance Bank said that it received in-principle approval from the Reserve Bank of India (RBI) for transition from a Small Finance Bank (SFB) to a universal bank. The RBI nod comes after the bank's letter dated 3 September 2024, requesting a universal bank license from the Indian Central Bank. With this approval received on August 7, AU Small Finance Bank becomes the first SFB to receive an in-principle approval to become a Universal Bank. At 9:20 AM, AU Small Finance Bank share price was trading 2.96% higher at ₹ 766.05 apiece on the BSE.
Mint
08-08-2025
- Business
- Mint
AU Small Finance Bank gets RBI nod for universal bank license. Details here
AU Small Finance Bank shares will be in focus when the Indian stock market opens for trade on Friday. The Small Finance Bank (SFB) has received in-principle approval from the Reserve Bank of India (RBI) for transition from an SFB to a universal bank. This RBI nod came after the SFB's letter dated 3 September 2024, requesting a universal bank license from the Indian Central Bank. The in-principle approval from the RBI in this regard came on 7 August 2025. With this approval, AU Small Finance Bank becomes the first SFB to receive an in-principle approval to become a Universal Bank. The RBI gave its approval to the AU Small Finance Bank for universal bank license on Thursday, saying, "It may be recalled that the Guidelines for licensing of Small Finance Banks 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, to bring 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." AU Small Finance Bank informed about the RBI's nod for a universal bank license on Thursday in an exchange filing, saying, "We are pleased to inform that AU Small Finance Bank ('AU' / 'Bank') has received an in-principle approval from RBI for transition from a Small Finance Bank to Universal Bank today, August 7, 2025." Speaking on the universal bank license being approved by the RBI, Sanjay Agarwal, Founder, MD & CEO of AU Small Finance Bank, said, "We have made history by receiving in-principle approval from the Reserve Bank of India to transition into a Universal Bank. This milestone is a reaffirmation of our purpose, perseverance, and passion. We are deeply grateful to the Government of India and the Reserve Bank of India for nurturing an ecosystem where institutions like AU can grow with integrity. This achievement is a tribute to every stakeholder who has stood by us - our customers, whose trust has shaped us; our employees, whose energy powers us; our investors and partners, who believed in our model; and our Board of Directors, whose guidance has been instrumental in our journey." With this RBI's in-principle approval, AU becomes the first SFB to receive an in-principle approval to become a Universal Bank, a milestone shaped by purpose, perseverance and discipline. This regulatory approval strongly validates AU's robust business model, sound governance, and enduring commitment to financial inclusion. More importantly, it affirms AU's evolution into a complete bank, offering a full spectrum of banking products and services that today's customers expect, spanning retail, business, and digital solutions. AU Small Finance Bank Limited (AU SFB) is a Scheduled Commercial Bank that has established itself as India's largest Small Finance Bank since commencing its banking journey in April 2017. Founded in 1996 by Sanjay Agarwal, a first-generation entrepreneur, AU enters its 30th year of operations with a legacy of deep-rooted service—having built over three decades, including more than eight years as a bank. This sustainable and inclusive financial institution empowers underserved and under-reached communities through a robust retail banking model.
Time of India
07-08-2025
- Business
- Time of India
AU secures in-principle nod for universal bank
MUMBAI: RBI has granted its first universal bank approval in a decade, giving AU Small Finance Bank (SFB) in-principle approval to transition from an SFB to a universal bank-the first such nod since Bandhan and IDFC in 2015. Founded in 1996 by Sanjay Agarwal as AU Financiers, an NBFC in Jaipur, AU became an SFB in 2015. Backed by Warburg Pincus and Temasek, it is now the largest SFB by assets and the first to seek universal status under RBI's new framework. Eligibility for the conversion includes Rs 1,000 crore net worth, five years' operations, exchange listing, recent profitability, strong capital and asset quality, regulatory compliance, and sound governance. Calling the approval "a validation of AU's business model, governance, and enduring commitment to financial inclusion," Agarwal said, "It affirms AU's evolution into a complete bank... spanning retail, business, and digital solutions." India has 12 public and 21 private sector banks, besides SFBs, payments banks, LABs, and cooperatives. Only universal banks are full-fledged commercial banks, permitted to offer the full range of services and large loans without geographic or customer-type restrictions. In contrast, SFBs and LABs have limited mandates. Stay informed with the latest business news, updates on bank holidays and public holidays .
