AU Small Finance Bank Gets RBI Nod to Become Universal Bank

Universal Bank

A universal bank is different from a small finance bank (SFB). It can offer a wide range of services. These include:

• Large corporate loans
• Investment products
• Insurance
• Wealth management
• Foreign exchange services

Small finance banks are more limited. They mostly serve low-income customers and small businesses. They also face restrictions on loan sizes and market segments. AU has operated under these limits since it became a bank in 2017.

Now, with RBI’s approval, it can break those boundaries.

“This is a historic moment. We’re proud to be the first SFB in the country to earn this in-principle approval under the RBI’s updated guidelines.” — Sanjay Agarwal, MD & CEO, AU Small Finance Bank

AU Bank’s Journey to the Top

AU Small Finance Bank began as a vehicle finance company in Rajasthan. It became a small finance bank in 2017. Over time, it built a strong customer base in rural and semi-urban areas.

In April 2024, RBI announced updated guidelines that let small finance banks apply for a universal license after five years of operation. AU applied in September 2024.

After careful review, the RBI granted AU in-principle approval on August 7, 2025.

Timeline:

• 2017: AU started as a Small Finance Bank
• 2021-24: Grew rapidly, widened customer base, improved compliance
• April 2024: RBI issued revised norms allowing SFBs with 5+ years track record to apply for a universal license
• September 2024: AU Bank applied to RBI under the new rules
• August 7, 2025: Received in-principle nod to convert

You can read the RBI approval news on Reuters and The Economic Times.

This is just the first step. The bank still has to meet certain conditions before getting full approval.

Strong Q1 Performance

AU’s performance in the April–June quarter (Q1 FY26) has been solid:

• Net profit: ₹581 crore (up 16% year-on-year)
• Total income: ₹5,189 crore
• Net interest income: ₹2,045 crore
• Loan book: ₹1.17 lakh crore (18% growth)
• Deposits: ₹89,655 crore

Key Financials (Q1 FY26: April–June 2025)

The gross NPA rose to 2.47%, and net NPA to 0.88%, mostly due to agriculture-related loan stress. Still, the bank’s capital adequacy ratio remains strong at 19.42%.

What Changes for AU Bank?

This approval allows AU to:

• Lend to large businesses
• Expand into urban banking
• Launch services like insurance and mutual funds
• Compete directly with large private sector banks

It also strengthens AU’s brand. It’s no longer just a rural bank. It’s now aiming to become a national player.

Impact on Customers

Customers can expect:

• New financial products like credit cards and investments
• Better digital banking tools
• More branches and service options

AU’s shift to a universal bank means more features for everyone—from village customers to city professionals.

What’s Next?

The bank must now meet RBI’s final conditions. This includes strengthening systems, hiring for new roles, and submitting a detailed transformation plan. If all goes well, AU may receive full approval in 2026.

Industry experts believe this could inspire other small finance banks to follow a similar path.

Summary

This is a bold new phase for AU. What started as a small lending business in Jaipur is now close to becoming a full-fledged commercial bank. If it clears the final hurdle, AU Small Finance Bank could soon be competing with the biggest names in Indian banking.

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