RBI grants AU Small Finance Bank in-principle nod for universal bank licence — first in 10 years

The Reserve Bank of India (RBI) has granted ‘in-principle’ approval to AU Small Finance Bank (AU SFB) to transition from a small finance bank to a universal bank, marking a major milestone in the lender’s evolution. This approval positions AU SFB to become the first small finance bank in India to make this shift.

Founded in 2017 after receiving its small finance bank licence in 2015, AU SFB has rapidly expanded its presence, now operating over 2,500 banking touchpoints across 21 states and four Union Territories. As of June 2025, the Jaipur-headquartered bank serves over 1.15 crore customers and employs more than 53,000 people.

Shares of AU Small Finance Bank closed at Rs 744.00, up by 1.27%.

The RBI’s greenlight comes amid the bank’s latest Q1 FY26 earnings, which showcased resilient performance despite asset quality challenges.

AU SFB reported a 16% year-on-year increase in net profit at Rs 581 crore for the June quarter, up from Rs 503 crore a year earlier. This growth was driven by higher treasury income, which helped counter the rising stress in asset quality.

Net interest income (NII) for the quarter stood at Rs 2,045 crore, compared to Rs 1,921 crore in Q1 FY25, while total income rose to Rs 5,189 crore, up from Rs 4,278 crore. Interest earned during the period also improved to Rs 4,378 crore, from Rs 3,769 crore previously.

Operating profit rose sharply to Rs 1,312 crore, from Rs 952 crore a year ago. However, asset quality deteriorated, with gross NPAs rising to 2.47% of gross advances, compared to 1.78% in the same period last year. Net NPAs also climbed to 0.88%, up from 0.63%.

In response, the bank’s provisions and contingencies nearly doubled to Rs 533 crore, versus Rs 283 crore last year. The Provision Coverage Ratio (PCR) remained strong at 83%, but the capital adequacy ratio slipped slightly to 19.42%, from 20.11%.

Commenting on the results, Sanjay Agarwal, MD & CEO of AU Small Finance Bank, said, “In a seasonally soft quarter, we have delivered consistent performance across deposits, assets, and profitability. As the economic environment improves, AU remains focused on building a scalable and sustainable bank.”