Context:
Reserve Bank of India (RBI) Governor Sanjay Malhotra has confirmed that a decision on applications submitted by small finance banks (SFBs) seeking conversion into universal banks will be taken soon. His remarks were made in an interview earlier this week.
Applications Under Consideration
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So far, three SFBs have formally applied for conversion:
- AU Small Finance Bank – Applied in September 2023
- Ujjivan Small Finance Bank – Applied in February 2024
- Jana Small Finance Bank – Applied in June 2025
What Is Universal Banking?
Universal banking is a system in which banks provide a wide variety of comprehensive financial services, including those tailored to retail, commercial, and investment services.
RBI’s Licensing Guidelines Universal Banking Licences in India (2016)
The Reserve Bank of India introduced the ‘On Tap’ Licensing Policy in August 2016 for private sector universal banks. This policy allows eligible applicants to seek a banking licence at any time, enhancing dynamism and competition in the Indian banking sector.
RBI Eligibility Criteria for Conversion
To be considered for conversion into a universal bank, SFBs must meet the following criteria:
- Be a listed entity
- Have a minimum net worth of ₹1,000 crore as of the quarter preceding the application
- Maintain a satisfactory track record for five years as a scheduled bank
- Maintain Gross NPA ≤ 3% and Net NPA ≤ 1% over the last two financial years
- Report net profit in the last two financial years
- Comply with the prescribed capital adequacy norms
- Submit a detailed rationale for conversion
- Maintain a diversified loan portfolio (preferred)
