In a key regulatory development, Reserve Bank of India has returned Ujjivan Small Finance Bank’s application for transition into a universal bank, citing the need for further diversification in its loan portfolio.
The central bank advised the lender to reapply after demonstrating a more balanced asset mix. In a stock exchange filing, Ujjivan said the RBI acknowledged its recent efforts toward diversification but noted that there is still room for improvement.
“The RBI through their aforesaid letter took note of the bank’s recent efforts toward diversification of its loan portfolio. However, they were of the view that there is scope for progress in this area,” the bank stated.
As of March, Ujjivan’s gross loan portfolio stood at ₹40,655 Cr, with nearly 52% of assets comprising unsecured loans, down from 56.5% a year earlier. Over 36% of the portfolio consists of loans to joint liability group members, while the rest of the unsecured loans are individual borrowings.
Housing loans account for around 26% of the total business. The bank also offers MSME loans, vehicle loans, agri loans, and gold loans as part of its lending mix.
Ujjivan said the application was part of its long-term growth strategy and added that it will continue to focus on diversification before reapplying, in line with RBI’s guidance.
While the RBI expects applicants for universal banking licences to meet criteria such as diversification, asset quality, and profitability, it has not specified detailed thresholds for loan diversification.
Earlier, the RBI had also returned a similar application from Jana Small Finance Bank. Among small finance banks, only AU Small Finance Bank has received an in-principle universal banking licence so far.
A universal banking licence would ease certain regulatory requirements for small finance banks. The capital adequacy ratio could reduce from 15%, while priority sector lending targets would drop to 40% from 60%. Additionally, the requirement to maintain at least 50% of loans below ₹25 lakh would no longer apply.
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