News: The Reserve Bank of India has granted AU Small Finance Bank a universal banking license, the first in a decade, potentially paving the way for other small finance banks to transition.
RBI Grants AU Small Finance Bank Universal License, First in a Decade
- The license was given under the RBI’s ‘on tap’ licensing guidelines and the framework for the voluntary conversion of small finance banks to universal banks.
- Eligibility criteria:
- The listed small finance banks with minimum net worth of Rs 1,000 crore at the end of the previous quarter are eligible to apply for a transition.
- They also need to have a minimum 15% capital to risk-weighted assets ratio and net profits in the preceding two financial years.
- NPAs: Their gross non-performing assets has to be less than or equal to 3% for two preceding financial years while the net non-performing assets has to be less than or equal to 1% for two preceding financial years.
- They should also meet the prescribed CRAR requirements for SFBs.
- Importance: 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.
- Past examples: The last time RBI granted universal banking license to Bandhan Bank and IDFC Bank (now IDFC First Bank) was in April 2014.
About Small Finance Banks
- Small Finance Banks are specialized financial institutions set up to foster financial inclusion by delivering basic banking services to underserved and unbanked segments of the population.
- Genesis: Announced in the Union Budget of 2014-15
- Key Features of SFBs:
- Regulated by RBI: Function under the Banking Regulation Act, 1949, and other relevant laws.
- Basic Banking Services: Offer savings accounts, current accounts, fixed deposits (FDs), recurring deposits (RDs), and loans.
- Scheduled Bank Status: Granted upon meeting eligibility criteria under the RBI Act, 1934.
- Priority Sector Focus: Required to allocate at least 60% of ANBC to PSL sectors like agriculture and MSMEs.
- Capital Requirement: Must have a minimum paid-up capital of ₹200 crore.
- No Subsidiaries: Not allowed to set up subsidiaries for non-banking financial services
