Current Context: The Reserve Bank of India has given ‘in-principle’ approval to AU Small Finance Bank to change into a universal bank. It is the first such approval in 10 years.

About Universal Bank Licence:

• Allows a bank to offer all types of banking services (commercial + investment) under one roof.
• Last given in 2014 to Bandhan Bank and IDFC Bank.

Eligibility for Small Finance Bank to Become a Universal Bank:

• Scheduled bank status for at least 5 years.
• Listed on a recognised stock exchange.
• Minimum net worth: ₹1,000 crore.
• Profits in the last 2 years.
• Low bad loans – Gross NPA ≤ 3% and Net NPA ≤ 1%.
• No new promoters during transition.
• Preference to banks with a variety of loans.

About Small Finance Banks:

• Announced in Union Budget 2014–15.
• Purpose: Financial inclusion.
• Registered as public limited companies under the Companies Act, 2013.
• Governed by the Banking Regulation Act, 1949.
• Minimum capital requirement: ₹200 crore.
• Promoters must be experienced in banking/finance for at least 10 years.