AU Small Finance Bank stock rallies over 6% on universal banking hopes | Stock Market Today- QHN

AU Small Finance Bank (Photo: Wikimedia Commons)

Shares of AU Small Finance Bank (SFB) rallied more than 6 per cent on Monday after analysts said the lender meets all eligibility criteria laid down by the Reserve Bank of India (RBI) for obtaining a universal banking licence.

This prompted the shares of AU SFB to end at Rs 639, up 6.5 per cent over its previous day’s close. But share prices of most other SFBs ended with moderate gains or losses.

The RBI had on Friday released guidelines for voluntary transition of SFBs into universal banks.

The apex bank has laid down qualitative criteria of a satisfactory five-year track record, which will be evaluated post the application made by SFBs.

Besides, the RBI has also specified certain quantitative aspects such as a minimum net worth of Rs 1,000 crore, profitability track record in the past two financial years and meeting capital requirements.

They also include gross and net non-performing loans of less than 3 per cent and 1 per cent, respectively, in the past two financial years. Also, the SFB has to be listed and should have a diversified loan book. 

An analysis done by Macquarie showed that only AU SFB meets all the requirements. Its peers lose out on one or more criteria. 

“A comparison of listed SFBs clearly shows that currently only AU SFB meets all the quantitative criteria for application for conversion to a universal bank. Other SFBs are not eligible for the transition as they fail to meet the criteria. This is primarily because of a non-performing asset (NPA) ratio higher than what the guidelines require and/or a concentrated loan portfolio (microfinance largely),” the brokerage said in a note.

Market players said it remains to be seen how soon AU SFB is interested in becoming a universal bank. This is given that it is currently focused on integration with Fincare SFB, which it acquired recently. 

Becoming a universal bank can help improve margins and leverage for SFBs.

According to Macquarie, the priority sector lending (PSL) requirements for SFBs are 75 per cent while that for banks are just 40 per cent. Also, the capital adequacy ratio (CAR) is 15 per cent for SFBs and 11.5 per cent for banks. 

First Published: Apr 29 2024 | 6:57 PM IST