'Will be universal in less than 18 months': AUSFB MD & CEO Sanjay Agarwal says bank will stay the course, remain growth-focussed

AU Small Finance Bank (AUSFB) will complete transitioning into a universal bank in less than 18 months, founder and MD & CEO, Sanjay Agarwal, said Friday, a day after it received the ‘in-principle’ approval from the Reserve Bank of India (RBI). He also clarified that the bank’s approach will remain unchanged in the near term as AU will continue to focus on its core strengths during the transition.

Following the approval, the bank's next step will be to undertake significant changes to its ownership structure over the next 18 months to comply with RBI guidelines. Agarwal confirmed that his shareholding would be transferred to a holding company well before the deadline. “We need to work it out, the whole modalities and processes. But I hold around 22% of the bank, so that entire holding needs to be in that structure. We have 18 months, but it will happen sooner, and we will become universal.” The validity of the RBI's in-principle nod will lapse automatically after 18 months from the date of granting of the approval. 

This is the first universal banking licence the RBI has granted in nearly a decade, after microfinance institution Bandhan and non-banking financial company IDFC received the approvals in 2015 and 2014, respectively. This is also the first time an SFB has been granted a universal banking licence.

The approval comes as a shot in the arm for AUSFB and will immediately remove a long-standing perception challenge of being a small finance bank (SFB), Agarwal added. “We are good in vehicle finance, mortgage finance, personal loan, credit card, SME, and MSMEs [segments]. So, if we have an opportunity to grow there, let’s stick to that, and look for corporate finance when we have a larger balance sheet than now,” he said, as he addressed a press conference in Mumbai. 

Agarwal, a chartered accountant by qualification, said the licence will immediately boost the bank’s market momentum. “I don’t think that our business model will undergo a tremendous change in the next three to five years… The cost of money will only come to our satisfaction… The changes may happen after that,” Agarwal said, adding the development will also remove a long-standing perception challenge of the lender. “The biggest challenge being an SFB was that people question your status—whether you are a corporate bank, whether you can take the large deposits, how much you are secured, whether you are as good as the other banks. So that unnecessary discussion was too much for my people to handle on the ground,” he said.

The founder anticipates a rapid growth in customer confidence. “I think this licence will take away all those challenges for people on the ground, and we can focus on the business itself.”

Apart from the structural change in the ownership, Agarwal stressed, the bank has met all regulatory requirements of a scheduled commercial bank. “We have fulfilled all the regulations and compliance requirements that are necessary for any bank to meet. So there’s no extra cost on the bank angle. It’s just this transitioning [that needs to] happen and we can become a universal one,” he said. On the challenges ahead, he said these were part of the journey.

Agarwal termed the RBI nod “a highly emotional moment” for his team and the organisation. Describing the licence as “the most powerful platform on Earth,” the founder likened the opportunity to the stories of global banking giants. “The stories of JPMorgan, Goldman Sachs, and other such banks fascinated me. And now, that chance is with us. The chance is that now we can bring a big difference to the whole of India."

He also credited his team, the RBI, and the wider banking ecosystem for AU’s success as an SFB. Speaking of his personal journey, he said it was proof of the opportunities India offers. “To have a bank licence…after thirty years, I think this can only happen in India."

He emphasised that the bank’s vision is long-term. “We are not making this platform transactional. We are making it a relationship platform, a generational platform…a platform that can exist forever.”