AU SFB’s transition to a universal bank could unlock more opportunities

"Building the bank is my only hobby,” says 56-year-old Sanjay Agarwal, Managing Director and CEO of AU Small Finance Bank (SFB), with a smile.

And it’s no small feat. “Getting a bank (Fincare SFB) merged in our seventh year of journey was not an easy task, but we took that challenge because we felt that there is a lot of opportunity around the southern markets,” says Agarwal.

Post merger, AU SFB had a combined base of over 10 million customers, more than 43,500 employees, a network of 2,350 physical touchpoints across 25 states and Union Territories, with a deposit base of Rs 89,854 crore and balance sheet of Rs 1.16 crore.

Agarwal says the gold loan franchise and tech capabilities of Fincare SFB were a bonus. “Their tech capability for internal use also surprised us positively,” says Agarwal.  

The bank now sees gold loans as one of its growth engines and plans to ensure end-to-end Agentic AI-driven journey for gold loan origination, which will be rolled out in Q1FY27. Its retail secured assets were 68% of the portfolio and grew 21% year-on-year to Rs 87,773 crore in Q3 FY26. The gold loan business grew 52% year-on-year to Rs 3,000 crore during the period. The merger also gave AU SFB crucial experience and lessons as the team worked on various fronts, including meeting regulatory and capital market guidelines, people integration and transformation of leadership, he notes.

Analysts point out that the merger had its own set of challenges. Anand Dama, Head of BFSI Research at Emkay Global Financial Services, says the merger has been relatively painful for AU SFB, as post the merger, the microfinance portfolio witnessed significantly higher NPAs. “The bank has done reasonably well with growth accelerating and margins stabilising,” he says.

For the third quarter of FY26, AU SFB posted 26% growth in net profit to Rs 668 crore. Its deposit book grew 23.3% year on year to Rs 1.38 lakh crore by December 31, 2025, while the gross loan portfolio increased by 19.3% year on year to Rs 1.29 lakh crore. Gross non- performing assets declined sequentially to 2.3% of gross advances in the third quarter of the fiscal.

“Growth remains among the best in the industry and we remain optimistic about underlying business profitability,” Motilal Oswal Financial Services said after the bank’s Q3 results.

No wonder, in the backdrop of the successful merger, Agarwal has been awarded as the Best CEO—Business Transformation Leader in the private sector bank, including SFBs, in the BT-KPMG Survey of India’s Best Banks & NBFCs.

New Push

AU SFB is moving on to newer frontiers and working on becoming a universal bank, for which it received in-principal approval from the RBI on August 7, 2025. This was a landmark in two ways. One, it was the first such approval by the RBI in 11 years. Two, AU SFB will be the first SFB to transition to a universal bank.

“This is a great validation for me personally, in my 30th year of journey and of course, of all the AUites for their hard work, vigilance, governance, and customer support,” says Agarwal, hoping that the transition process will be completed by February 2027.

It is also moving its headquarters from Jaipur to Mumbai. The shift is likely to be completed by October this year.

Dama of Emkay Global notes that AU SFB has given good growth outlook in the near to medium term, but how it transitions into a full-fledged universal bank needs to be seen.

Agarwal remains hopeful. He says addition in the customer segment would be a natural process. “If we really want to become a scalable and sustainable franchise, we need to have customers from every segment, but it will be in due course of time.”

AU SFB is also working to grow its touchpoints, currently at 2,726. It plans to add at least 150-200 touchpoints every year for the next few years. “We are [present] in 499 districts. We have to be present in all districts of the country,” says Agarwal.

The lender is also working on succession planning for the next 10-15 years. More recently, the RBI approved the re-appointment of Agarwal as MD & CEO for three years effective April 19, 2026.

Apart from scale, Agarwal also wants AU SFB to leave an impact on all its stakeholders and not be known only as a profitable and high growth organisation.

In an over hour-long conversation with BT, Agarwal says that he often uses cricket related terms to motivate his own team.

“During tough times, hold yourself and don’t get out,” is something he told his team during the Covid-19 pandemic,” Agarwal says.

That advice seems to have held the bank in good stead.

@surabhi_prasad