AU Small Finance Bank will receive its final license to operate as a universal bank only after promoter Sanjay Agarwal transfers his entire 22% equity stake into a separate holding company. The bank has 18 months to complete this transition. The lender has become the first small finance bank to secure a universal banking license, a fresh one from RBI in almost 11 years.
“Converting the promoter’s stake to a Non-operative Financial Holding Company (NOFHC) is a precondition for the license, as per the RBI’s in-principle approval,” said Agarwal, MD, AU Small Finance Bank. “I hold around 22% of the bank, so that entire holding needs to be in that structure. I feel that structure is far better for me because it allows me to experiment on the other side of financial services too.”
Agarwal acknowledged there may be some tax implications from the conversion but expressed confidence in completing the transition ahead of schedule.
“We have 18 months, but it will happen sooner, and we will become universal,” he said. “This license removes challenges for people on the ground and allows us to focus on business. It’s a validation by a regulator like RBI and sends a strong message that this bank is safe.”
Agarwal said the lender will continue to focus primarily on retail loans. He added that rather than competing directly with larger private sector banks, AU will operate in the NBFC space.
“I have been a retail asset guy all my life. We are good in retail finance, mortgage finance, personal loans, credit cards, and SME lending. We should stick to our strengths and look at corporate finance only when we have a larger balance sheet. It will be a gradual transformation,” he said.
On concerns about concentration risk in Rajasthan, where nearly 30% of the bank’s business originates—Agarwal said the share has been reducing steadily and will eventually fall to 15%.
“When we started, 80% of our business came from Rajasthan. That’s now down to 30% in eight years. In the next ten years, AU will not have more than 15% exposure in any state,” he said.
HR Khan, former deputy governor of the RBI and chairman of the bank, said reducing both product and geographic concentration remains a priority for the board.
“The board and the risk management committee have made this a top agenda. Over time, concentration in states where we had larger exposure has declined sharply. Today we operate in 21 states and four union territories,” Khan said.
As of June 2025, AU Small Finance Bank had a deposit base of Rs 1.27 lakh crore, an asset base of Rs 1.17 lakh crore, and a total balance sheet size of Rs 1.62 lakh crore.
“Converting the promoter’s stake to a Non-operative Financial Holding Company (NOFHC) is a precondition for the license, as per the RBI’s in-principle approval,” said Agarwal, MD, AU Small Finance Bank. “I hold around 22% of the bank, so that entire holding needs to be in that structure. I feel that structure is far better for me because it allows me to experiment on the other side of financial services too.”
Agarwal acknowledged there may be some tax implications from the conversion but expressed confidence in completing the transition ahead of schedule.
“We have 18 months, but it will happen sooner, and we will become universal,” he said. “This license removes challenges for people on the ground and allows us to focus on business. It’s a validation by a regulator like RBI and sends a strong message that this bank is safe.”
Agarwal said the lender will continue to focus primarily on retail loans. He added that rather than competing directly with larger private sector banks, AU will operate in the NBFC space.
“I have been a retail asset guy all my life. We are good in retail finance, mortgage finance, personal loans, credit cards, and SME lending. We should stick to our strengths and look at corporate finance only when we have a larger balance sheet. It will be a gradual transformation,” he said.
On concerns about concentration risk in Rajasthan, where nearly 30% of the bank’s business originates—Agarwal said the share has been reducing steadily and will eventually fall to 15%.
“When we started, 80% of our business came from Rajasthan. That’s now down to 30% in eight years. In the next ten years, AU will not have more than 15% exposure in any state,” he said.
HR Khan, former deputy governor of the RBI and chairman of the bank, said reducing both product and geographic concentration remains a priority for the board.
“The board and the risk management committee have made this a top agenda. Over time, concentration in states where we had larger exposure has declined sharply. Today we operate in 21 states and four union territories,” Khan said.
As of June 2025, AU Small Finance Bank had a deposit base of Rs 1.27 lakh crore, an asset base of Rs 1.17 lakh crore, and a total balance sheet size of Rs 1.62 lakh crore.
