Latest news with #SFBs
Indian Express
12-08-2025
- 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
Mint
11-08-2025
- Business
- Mint
Sovereign gold bonds: Two tranches up for premature redemption today; investors make up to 147% returns
Sovereign gold bonds: Two tranches of sovereign gold bonds (SGBs) are due for premature redemption today, August 11, according to a Reserve Bank of India (RBI) circular. The 2019-20 Series IX (issued in February 2020) and the 2020-21 Series V (issued in August 2020) can be redeemed today at ₹ 10,070 per gram, the RBI said, providing investors the opportunity to earn up to 147% returns on their investments. The redemption price of the SGBs has been decided based on the simple average of the closing gold price of 999 purity of the previous three business days from the date of redemption, as published by the India Bullion and Jewellers Association Ltd (IBJA). While the tenure of these gold bonds is eight years, investors have the option of premature redemption after the fifth year from the date of issue. Sovereign Gold Bonds 2019-20 (Series IX) were open for subscription from February 3 to February 7, 2020. The issue price of the SGB during the subscription period was set at ₹ 4,070 per gram. Therefore, at the current redemption price, investors can make a return of up to 147%. Sovereign Gold Bonds 2020-21 (Series V) were open for bidding between August 3 and August 7, 2020. The issue price for the bond during the subscription period was ₹ 5,334, resulting in an absolute return of 89% on the investment. Gold prices have been in a sharp uptrend over the past few years, impacted by the pandemic, the Russia-Ukraine war, the weakening US dollar and now the global uncertainty created by tariffs unleashed by US President Donald Trump. SFBs are government-backed securities linked to the price of gold. These bonds are issued by the Reserve Bank of India on behalf of the Government of India. SGBs give you a fixed interest of 2.50% per year on your initial investment. This interest is paid to your bank account twice a year, and the final interest payment comes along with the principal amount when the bond matures. If you want to withdraw the bond before maturity, you need to contact your bank, SHCIL office, post office, or agent at least 30 days before the next interest payment date. The request must be made at least one day before the interest payment date. Once approved, the money will be transferred to your bank account provided during the application, according to the details available on the RBI's website. Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
Time of India
11-08-2025
- Business
- Time of India
SFBs shares rise as RBI grants universal banking license approval to AU SFB
ET Intelligence Group: The shares of small finance banks (SFBs) rose between 1% and 8% on Friday morning amid weakness in the broader market. The rally was triggered by the Reserve Bank of India's move to grant a universal banking licence to AU Small Finance Bank , fuelling investor hopes that other SFBs may follow suit in securing similar approvals. Ujjivan Small Finance Bank applied for universal bank licence in February this year while Jana Small Finance Bank applied in June. Equitas Small Finance Bank has also expressed interest in seeking universal banking licence. However, industry experts believe that it will unlikely be an easy task for other SFBs to get universal bank licence given tighter scrutiny by the RBI. Productivity Tool Zero to Hero in Microsoft Excel: Complete Excel guide By Metla Sudha Sekhar View Program Finance Introduction to Technical Analysis & Candlestick Theory By Dinesh Nagpal View Program Finance Financial Literacy i e Lets Crack the Billionaire Code By CA Rahul Gupta View Program Digital Marketing Digital Marketing Masterclass by Neil Patel By Neil Patel View Program Finance Technical Analysis Demystified- A Complete Guide to Trading By Kunal Patel View Program Productivity Tool Excel Essentials to Expert: Your Complete Guide By Study at home View Program Artificial Intelligence AI For Business Professionals Batch 2 By Ansh Mehra View Program "SFBs should focus on Know Your Customer (KYC) and cyber security related compliances issues," HR Khan, chairman, AU SFB told ET adding that product and geographical diversification are critical factors in securing a universal banking licence. Agencies Unlike universal banks, SFBs operate under stricter capital requirements and have higher priority sector lending obligations. They are subject to several restrictions, such as being unable to run non-banking financial subsidiaries. They are required to allocate 75% of their net advances to priority sectors. For universal banks this requirement is 40%. The RBI also mandates that SFBs must have 50% of their loan portfolio comprised of low-ticket loans up to ₹25 lakh. These restrictions can pressure the SFBs' asset quality and profitability, often leading to higher gross non-performing assets (NPA) ratios. Live Events To apply for a universal license, the RBI regulations stipulate that an SFB must be listed, maintain a minimum net worth of ₹1,000 crore, and have a gross NPA and net NPA of 3% and 1% or lower, respectively, for the past two financial years. They are also required to maintain a capital adequacy ratio of 15% compared with 9% for scheduled banks.
&w=3840&q=100)
Business Standard
07-08-2025
- Business
- Business Standard
AU SFB gets RBI nod to convert into universal bank, a first since 2014
After a gap of 11 years, the Reserve Bank of India has approved an entity to become a universal bank, granting in-principle approval to AU Small Finance Bank on Thursday. AU is the first SFB to get regulatory nod to convert into a universal bank. AU is by far the largest small finance bank in the country, with ₹2.40 trillion in total business, commanding about 40 per cent market share among SFBs. In its eight years as an SFB, AU's loan book has grown from ₹13,413 crore in FY18 to ₹1.09 trillion, while deposits have risen from ₹7,923 crore to ₹1.24 trillion. In 2014, the RBI had granted in-principle approval to Bandhan and IDFC (now IDFC First Bank) to operate as universal banks. 'This in-principle approval acknowledges not just our ability to grow, but to grow responsibly,' said Sanjay Agarwal, managing director and chief executive officer, AU SFB. 'It is a testament to AU's strength in reaching widely, integrity in serving wisely, and resilience to shine across economic cycles,' he added. In April 2024, the RBI laid out norms for the voluntary transition of small finance banks into universal banks. AU met all eligibility criteria and applied for conversion in September last year. Two more SFBs—Ujjivan SFB and Jana SFB—have also applied for conversion; their applications are still under review by the regulator. 'This regulatory approval is a strong validation of AU's robust business model, sound governance, and enduring commitment to financial inclusion. More importantly, it affirms AU's evolution into a complete bank—one that offers a full spectrum of banking products and services,' AU said in a statement. AU began its journey in 1996 when Sanjay Agarwal started his entrepreneurial venture in Jaipur, Rajasthan, as a vehicle financing company for the underserved segment, which later became a non-banking finance company—AU Financiers. AU was among the first batch of 10 entities to receive an SFB licence in 2015 and began operations as a small finance bank in 2017. Of the 10 entities that became SFBs, eight were microfinance institutions. Only AU and Capital Local Area Bank were exceptions. In April 2024, AU acquired another SFB, Bengaluru-based Fincare—marking the first such merger in the SFB space. Even after the acquisition, AU's microloan book was less than 10 per cent of its total portfolio. At a time when the microfinance sector is facing multiple headwinds, a relatively smaller exposure bodes well for the to-be universal bank. 'What has worked in AU SFB's favour is its scale and the relatively low share of unsecured loans in its portfolio,' said an analyst on condition of anonymity. 'Going forward, the most significant change will be the removal of the 'Small Finance Bank' tag, which will enable AU to lower its deposit costs. This, in turn, will allow the bank to operate in less risky asset classes, contributing to more stable profitability,' the person said. Moreover, SFBs were required to lend 60 per cent of their loan book to the priority sector—down from 75 per cent in the previous financial year. AU's PSL loans stood at 80 per cent. In contrast, for universal banks, the requirement is 40 per cent. This frees up funds for AU, which can now be deployed in the mid-corporate lending segment, offering attractive yields of around 12 per cent. 'With the SFB status no longer applicable, the priority sector lending (PSL) requirement will be reduced to 40 per cent, giving AU the flexibility to sell surplus PSL certificates,' the person quoted above added. Furthermore, AU will now be able to service corporate clients and offer a broader bouquet of financial services. Overall, the transition opens up a host of new opportunities for AU Bank across both retail and corporate segments.
&w=3840&q=100)
Business Standard
24-06-2025
- Business
- Business Standard
PSL norm easing provides limited room for SFBs to make gains: CareEdge
The Reserve Bank of India's move to ease priority sector lending (PSL) targets may free up around Rs 41,000 crore for Small Finance Banks (SFBs). However, these banks may have limited scope to realise short-term gains by offloading excess exposure due to the low premium for such certificates, according to CareEdge Ratings. The banking regulator has reduced the overall PSL target for SFBs from 75 per cent to 60 per cent, effective from FY26, marking a significant shift in their lending obligations. In a statement, CareEdge said the lower PSL requirement would create opportunities for SFBs to sell priority sector lending certificates (PSLCs) or offload excess exposure to other market participants. However, the immediate impact on profitability may be muted. The revised 60 per cent target is seen as more attainable. It reduces the regulatory burden, particularly during periods of rapid growth or economic stress, easing compliance pressures and lowering the risk of penalties for falling short of mandated lending. Sanjay Agarwal, senior director at CareEdge Ratings, said the revised PSL guidelines represent a strategic inflexion point for Small Finance Banks. 'By reducing the overall PSL target while maintaining operational flexibility, the RBI has created a more balanced and practical regulatory framework,' he said. The RBI's easing of PSL norms for SFBs follows two recent regulatory developments in the priority sector space. First, in March 2025, the RBI expanded the range of exposures eligible for PSL classification. Second, in June 2025, it reduced the qualifying asset threshold for non-banking finance companies working as microfinance institutions (NBFC-MFIs) from 75 per cent to 60 per cent.
