The Reserve Bank of India (RBI) has established strict criteria for small finance banks (SFBs) aspiring to transition into universal banks. These guidelines are designed to assure that only well-managed institutions undertake such a significant transformation.
RBI's Eligibility Criteria for Universal Banking Licenses:
Operational Tenure: SFBs must have a satisfactory track record of at least five years.
Net Worth: A minimum net worth of ₹1,000 crore is mandatory.
Asset Quality: The gross non-performing assets (NPA) ratio should be 3% or less, and the net NPA ratio must be below 1% over the past two financial years.
Profitability: SFBs are required to have been profitable for the last two fiscal years.
Regulatory Compliance: A consistent record of regulatory compliance and a satisfactory performance history are essential.
Current Landscape
Among the existing SFBs, AU Small Finance Bank is the only institution that currently meets all the RBI's criteria for applying for a universal banking license. However, it is presently engaged in a merger process that could take 9-12 months to complete, delaying its application.
Other SFBs are actively working towards meeting the eligibility requirements but face challenges, particularly concerning asset quality norms and profitability benchmarks. For instance, Ujjivan Small Finance Bank has expressed intentions to apply for a universal banking license by the end of the current fiscal year, aiming to secure the license by March 2025.
