Daijiworld Media Network – Mumbai
Mumbai, Aug 8: AU Small Finance Bank, which began as a small vehicle loan provider in Rajasthan, is now set to transform into a universal bank after receiving in-principle approval from the Reserve Bank of India. The announcement marks a significant milestone in the journey of founder Sanjay Agarwal, who started the company as AU Financiers in 1996.
At a press conference in Mumbai on Friday, Agarwal reflected on the bank’s evolution from a modest non-banking finance company to a mid-sized lender with over Rs 1 lac cr in advances as of March 2025. He said the journey had been one of resilience and belief, especially during early setbacks like the 2008 financial crisis.
In 2008, after convincing Motilal Oswal Private Equity to invest despite having revenues under Rs 2 cr, AU Financiers faced a major challenge during the global meltdown. Yet it survived and eventually transitioned into a small finance bank in 2017. Since then, it has consistently reported profits, with Rs 2,100 cr net profit in FY25 and no losses since becoming a bank.
AU Small Finance Bank now has a presence in 21 states and four union territories. It meets all regulatory criteria for universal bank transition, including consistent profitability, controlled bad loans, and a strong net worth. The RBI’s only condition is that Agarwal and his family transfer their 22 percent stake to a non-operative financial holding company within 18 months.
The bank has diversified its loan portfolio with vehicle loans making up 32.4 percent, micro business lending 26.5 percent, and unsecured loans at 8 percent. In 2021, AU entered the credit card segment targeting first-time users. While the business scaled to 9.8 lakh cards, it also saw a rise in defaults, which the bank has since addressed with stricter lending norms.
Its entry into microfinance through the acquisition of Fincare Small Finance Bank in 2024 also brought challenges. The Rs 8,000 cr microfinance loan book has since reduced to Rs 6,200 cr due to rising defaults across the sector. The bank expects to improve performance and grow the book back to Rs 7,000 cr by year-end.
Despite recent hiccups, Agarwal remains confident in the bank’s strategy. He said mistakes are part of taking calculated risks and reiterated that AU would continue focusing on retail banking. Plans are also in motion to shift operations to a new Mumbai headquarters in Bandra Kurla Complex, signalling a broader national outlook.
Chairman HR Khan, former RBI deputy governor, said the bank would now focus on building relationships over transactions as it steps into its next phase.