RBI has asked AU Small Finance Bank promoters Sanjay Agarwal and family to shift their 22% stake into a Non-Operative Financial Holding Company before granting final approval to operate as a universal bank.
AU SFB received in-principle approval on Thursday, enabling access to cheaper funds and big-ticket lending.
RBI’s NOFHC requirement is aimed at ring-fencing the bank to protect depositor money, explained non-executive chairman HR Khan.
AU SFB will not focus on large corporate loans, instead continuing with retail loans.
The bank will rebrand to “AU Bank” from April 2027, dropping the “SFB” tag to improve perception.
The Reserve Bank has asked AU Small Finance Bank promoters Sanjay Agarwal and family to move their holding to a non-operative financial holding company before it gives the nod to start working as a universal bank, officials said on Friday.
Agarwal, the founder, managing director and chief executive of the lender, said that even as a universal bank, it will not compete with larger banks but with non-bank finance companies (NBFCs).
AU SFB received in-principle approval to operate as a universal bank on Thursday, which will help it access funds at lower costs and also do big-ticket lending.
"I have been given 18 months to get the NOFHC (non-operative financial holding company) in place. Moving the holding into an NOFHC will allow greater flexibility for me to start other financial businesses like asset management or insurance, if we so desire," Agarwal told reporters here.
When asked about the price for transferring the shares and the tax liability thereof, Agarwal said there are some mechanics which need to be sorted out in this journey and added that he would like to do it before the 18-month deadline.
A senior financial sector official said there is some communication between the central bank and the government over the need for some relief on taxation for such transactions.
Explaining the insistence on creating NOFHC, AU's non-executive chairman, HR Khan, a career central banker who served as the Deputy Governor of the RBI, said this is a way to ring fence the bank from any potential troubles so that depositors' money is protected.
AU's deputy chief executive and executive director Uttam Tibrewal recalled that the RBI had, in 2016, come out with a regulation on the NOFHC-based sectors and added that all universal banks of the future will have to follow this.
Agarwal said he is not interested in hiking his stake in the 1996-incorporated venture beyond the current 22%.
Starting as a direct selling agent in 1996, AU transitioned to being a non-bank lender, became an SFB later and finally secured the in-principle nod to operate as a universal bank, the first entity in over a decade to be selected to be one.
Agarwal said even as a universal bank, it is not keen to explore big-ticket lending and would rather focus on the smaller-ticket retail loans segment itself, which forms 80% of its ₹1.17 lakh loan book at present.
There will not be any change in business strategies for the next three to five years at least, he said, adding that the bank will come out in a newer avatar to people from April 2027.
It will drop the SFB mention from the branding to operate as "AU Bank" when it starts the journey as a universal lender, Agarwal said, adding that the small finance bank mention makes people wary.
