A universal banking licence enables a financial institution to provide a comprehensive range of services, from commercial to investment banking, all under one roof. Customers benefit from increased convenience and efficiency when banking. In August 2016, the Reserve Bank of India (RBI) implemented its 'on tap' licensing policy for private sector universal banks. This meant that eligible players could apply for a banking licence at any time rather than waiting for a specific window.

Key Highlights

• RBI's updated April 2024 guidelines require SFBs to have ₹1,000 crore net worth, low NPAs, profitability.
• AU Small Finance Bank receives first 'in‑principle' approval in a decade to become a universal bank. 

Eligibility Criteria for the Universal Banking Licence

• Individuals/Professionals: Applicants must be residents with at least ten years of senior-level banking and finance experience.
• Entities/Groups: Private sector entities owned and controlled by residents with a 10-year or longer track record are eligible to apply. Large industrial houses are not eligible, but they can own up to 10% of such banks.
• NBFCs: Resident-controlled NBFCs with a successful track record of 10 years or more may apply, subject to the RBI's conditions.

The transformation of a small finance bank into a universal bank represents a significant step forward in the banking sector's growth and diversity. With this status, SFBs can expand their offerings to include large business loans, credit cards, mutual funds, and other investment products.

Also Read: RBI Keeps Rates Unchanged: Impact on EMIs and Fixed Deposits

RBI requirements for converting an SFB into a Universal Bank

• Minimum net worth of Rs 1,000 crore.
• Must have scheduled bank status.
• At least 5 years of satisfactory performance.
• Gross NPA ratio ≤ 3% over the last two fiscal years.
• Net NPA ratio ≤ 1% in the previous two fiscal years.
• Listed on recognized stock exchanges.

AU Small Finance Bank will be in the spotlight when markets open on Friday, following the Reserve Bank of India's in-principle approval to upgrade from a small finance bank to a universal bank. The approval follows the bank's September 3, 2024 request to the central bank for a universal banking license.