AU Small Finance Bank To Change Ownership Structure As RBI Mandates Non-Financial Holding Company

The Reserve Bank of India has granted AU Small Finance Bank Ltd. an 18-month window to complete its transition into a universal bank, with a key condition that promoter shareholding be routed through a non-financial holding company, the management said at a press conference.

Under the plan, the 21.4% stake held by Managing Director Sanjay Agarwal and his family, along with other promoters, will be transferred to this new entity. On Thursday, the bank received RBI's in-principle nod to operate as a universal lender.

"This is the only condition the RBI has laid out," the management said at a press briefing, adding that the bank was the first to apply for such a transition after the central bank's 2024 guidelines provided clarity on the glide path.

The bank needs to figure out the process of transitioning the ownership, Agarwal said, adding that, "we will ensure it happens quickly."

"We will become universal before 18 months and this licence will push business momentum by giving us cheaper cost of money," he said.

Of the total 21.4% stake held by the promoters, Agarwal held 15.73% stake in the bank, followed by Jyoti Agarwal at 3.17% and Shakuntala Agarwal at 2.5% as of June end, according to bourses.

While the bank will not see tremendous change in its business model in the next few years, they will see a change over time, he said.

This has come as the biggest challenge the bank faced as an SFB was people questioning their status and unnecessary discussion for the bank's employees on the ground. However, with the licence approval in place now, it takes away those challenges, Agarwal said.

"If you are getting RBI's validation, it sends a strong message to the public," he said.

The RBI's approach is that "you need some experience to graduate to the next stage", Chairperson HR Khan said. "AU Small Finance Bank has evolved from a non-banking finance company to a small finance bank and now to a universal bank."

With a balance sheet larger than some small commercial banks, the bank said that it already operates at the scale of a universal bank and is now preparing for a smooth regulatory transition.

He also said that the bank has invested heavily in technology and talent and that it has achieved this result based on the best of tech and capable manpower.

Agarwal also said that AU will become a more Mumbai-based bank. While there are certain pockets in unsecured loans where conditions are tough, the bank will navigate through this and strongly believes that it will bring it to normalcy.

He also said that the stress in microfinance is stabilising now and that the bank's return on assets remain at 1.5%.

While the bank has always been in retail finance, if it has an opportunity to grow further there, it will continue to do so. "We will look at corporate lending later," he said, adding that it is well diversified on products now.

For the quarter ended June, AU Small Finance Bank reported a net profit of Rs 581 crore, up 16% year-on-year. Net interest income rose 6% year-on-year to Rs 2,045 crore.

The bank's total advances were at Rs 1.11 lakh crore, up 23% from last year, while its deposits rose 31% to Rs 1.27 lakh crore.