In a big milestone for India’s banking sector, the Reserve Bank of India (RBI) has given AU Small Finance Bank IN-principle approval to upgrade to a Universal Bank. The approval, granted on August 7, comes after the bank voluntarily applied for the transition on September 3, 2024.
“The Reserve Bank has decided to grant in-principle approval to AU Small Finance Bank Limited (AUSFB) for transitioning from a Small Finance Bank (SFB) to a Universal Bank,” the RBI said in its official circular.
With this, AU has made history — becoming the first Small Finance Bank in the country to receive such a green light from the RBI.
The upgrade could open up a whole new world of opportunities for AU, allowing it to expand its reach and offer a wider range of services.
“RBI approval for the transition will help us evolve into a complete bank, offering the full spectrum of banking products and services today’s customers expect — from retail to business to digital solutions,” the bank said in an exchange filing.
AU also highlighted that the move will strengthen its brand recognition, give access to more diverse deposit sources, and is expected to lower its funding costs in the medium to long term.
AU Makes History!
We are the first Small Finance Bank to receive an in-principle approval from the Reserve Bank of India to become a universal bank.
We thank the Govt. of India, the @RBI, our customers, our board of directors, our partners & investors from the bottom of our… pic.twitter.com/IB7fFYoxuU
— AU Small Finance Bank (@aubankindia) August 7, 2025
AU Small Finance Bank Shares Jump After RBI’s Historic Nod to Become a Universal Bank
AU Small Finance Bank’s stock saw a strong boost on Thursday, rising 1.27% to close at ₹744 apiece. During the session, the shares hit an intraday high of ₹745 and a low of ₹725.According to NSE data, over 11.10 lakh shares changed hands during the day, with a total trading value of ₹81.75 crore. The bank, which is part of the BSE 100 index, now commands a market capitalisation of more than ₹55,458 crore.
The rally came after the Reserve Bank of India (RBI) made a landmark announcement — granting in-principle approval to AU Small Finance Bank to convert into a Universal Bank. This is the first time in over 11 years that the RBI has allowed any entity to make this transition, and AU is the first Small Finance Bank (SFB) to achieve the feat.
AU had met all eligibility norms and applied for the conversion in September last year. Two more SFBs — Ujjivan SFB and Jana SFB — have also applied, but their requests are still pending with the regulator.
“This regulatory approval is a strong validation of AU’s robust business model, sound governance, and commitment to financial inclusion. More importantly, it affirms AU’s evolution into a complete bank offering a full spectrum of products and services,” the bank said in a statement.
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AU was among the first batch of 10 entities to receive an SFB licence in 2015 and began operations in 2017. While most SFBs started as microfinance institutions, AU and Capital Local Area Bank were exceptions.
In April 2024, AU made headlines again by acquiring Bengaluru-based Fincare Small Finance Bank — the first merger of its kind in the SFB sector. Even after the acquisition, AU’s micro loan book remains under 10% of its total portfolio, a positive sign amid current challenges in the microfinance industry.
“What has worked in AU SFB’s favour is its scale and the relatively low share of unsecured loans in its portfolio,” said an analyst, requesting anonymity.
Looking ahead, the biggest change for AU will be dropping the ‘Small Finance Bank’ tag. According to experts, this move will help the bank bring down its deposit costs, which in turn will allow it to focus on safer asset classes and ensure more stable profits.
Currently, SFBs are required to lend 60% of their loans to the priority sector — a rule that was even stricter at 75% until last financial year. AU’s priority sector lending (PSL) stands at 80%. In contrast, universal banks only need to maintain 40% PSL.
This shift will free up a significant chunk of funds for AU, giving it room to explore the mid-corporate lending space, where returns can be as high as 12%.
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