In a landmark move that reshapes India’s banking landscape, AU Small Finance Bank (AU SFB) has received the Reserve Bank of India’s (RBI) ‘in-principle’ approval to transition into a universal bank. This marks the first such approval in over a decade, making AU SFB the pioneer among small finance banks (SFBs) to take this leap.
📜 A Historic Milestone
The RBI’s decision, announced on August 7, 2025, is more than just a regulatory green light—it’s a recognition of AU’s consistent performance, robust governance, and strategic vision. AU SFB now joins the ranks of full-service banks like HDFC, ICICI, and SBI, capable of offering a complete suite of banking services to both retail and corporate clients.
This shift is particularly important since the RBI last issued such a license in 2014, to Bandhan Bank and IDFC Bank. AU’s approval breaks an 11-year hiatus and sets a precedent for other SFBs like Ujjivan and Jana, whose applications are still under review.
🛤️ From Humble Beginnings to Banking Giant
AU’s journey started in 1996 when Sanjay Agarwal, a chartered accountant and first-generation entrepreneur, established AU Financiers in Jaipur. Initially focused on vehicle financing for underserved communities, the company evolved into a non-banking financial company (NBFC) and later received its SFB license in 2015. By 2017, AU had evolved into a scheduled bank and quickly broadened its presence throughout India.
Currently, AU SFB manages more than 2,500 banking locations in 21 states and 4 Union Territories, catering to over 11.5 million clients and employing over 53,000 staff members
📈 Financial Strength and Performance
AU’s financial metrics have consistently impressed regulators and investors alike. As of FY25, the bank reported:
- ₹1.09 trillion in loan book
- ₹1.24 trillion in deposits
- ₹581 crore net profit in Q1 FY26 (up 16% YoY)
- ₹2,045 crore in net interest income
- ₹5,189 crore in total income
Despite some asset quality stress—gross NPAs rose to 2.47%—AU maintained a strong Provision Coverage Ratio of 83% and a capital adequacy ratio of 19.42%, well above regulatory requirements.
✅ Why AU Qualified for Universal Bank Status
The RBI’s eligibility criteria for SFBs to transition include:
- Minimum five years of satisfactory performance
- Net worth of at least ₹1,000 crore
- Listing on a recognized stock exchange
- GNPA and NNPA of ≤3% and ≤1%, respectively, over the last two years
AU met all these benchmarks and formally applied for conversion in September 2024. The bank’s relatively low exposure to unsecured loans and its acquisition of Fincare SFB in April 2024 further strengthened its case.
Open your account in AU small finance bank from here
🔓 What Changes for AU?
The shift from SFB to universal bank unlocks several strategic advantages:
1. Lower Deposit Costs
SFBs typically face higher deposit costs due to limited access to wholesale funding. As a universal bank, AU can attract larger deposits at more competitive rates, improving its net interest margin.
2. Expanded Lending Opportunities
SFBs are required to allocate 60% of their loan book to priority sector lending (PSL). For universal banks, this drops to 40%, freeing up capital for mid-corporate lending and other high-yield segments.
3. Broader Product Portfolio
AU can now offer a full range of financial services, including wealth management, insurance, and corporate banking. It can also form subsidiaries—something SFBs are restricted from doing.
4. Improved Brand Perception
Dropping the “Small Finance Bank” tag enhances AU’s credibility among institutional clients and investors, positioning it as a full-fledged player in India’s financial ecosystem.
💬 Leadership Speaks
Sanjay Agarwal, MD and CEO of AU SFB, conveyed pride in the bank’s progress:
“This preliminary approval recognizes our capacity to expand, while also ensuring we do so in a responsible manner.” It is a testament to AU’s strength in reaching widely, integrity in serving wisely, and resilience to shine across economic cycles.”
The bank also released a statement emphasizing its commitment to financial inclusion and its readiness to evolve into a complete banking institution.
🔮 What’s Next?
While the approval is ‘in principle,’ AU must now fulfill additional conditions laid out by the RBI, including due diligence and operational adjustments. Once finalized, AU will officially shed its SFB status and begin operating as a universal bank.
This transition is expected to take several months, during which AU will align its systems, compliance frameworks, and product offerings with universal banking norms.
🌐 Industry Impact
AU’s transition could trigger a wave of similar applications from other SFBs. With the RBI’s updated guidelines in April 2024, the path to universal banking is now clearer for eligible institutions. Analysts believe this could lead to a more competitive and diversified banking sector in India.
Moreover, AU’s success story reinforces the importance of financial inclusion, responsible lending, and scalable business models in India’s evolving economy.
