AU Small Finance Bank shares surge 8% after universal banking license approval from RBI

Shares of AU Small Finance Bank Ltd. gained as much as 8% in early trading on Friday, August 8, after it received in principal approval from the Reserve Bank of India to become a Universal Bank.

With this, it has become the first Small Finance Bank in India to receive such an approval after the central bank’s “On-tap” licensing guidelines were issued in April last year.

AU Small Finance Bank has submitted the application to become a Universal Bank in September last year and the decision has taken 11 months. This also sets a precedent for Ujjivan Small Finance Bank and Jana Small Finance Bank, both of whom have applied for a similar license.

While Ujjivan applied for the license in February this year, Jana did so in June.
AU Small Finance is the largest SFB in the country, with a loan book of over ₹1 lakh crore, which grew 23% during the June quarter from last year. Equitas is the second largest with a ₹38,000 crore loan book.

Goldman Sachs believes that while the license secures strategic optionality for AU Small Finance Bank, the long-term payoff will hinge on execution.

“Believe this development is likely to be viewed positively as it enables AU to tap into an expanded customer set as first,” the brokerage said.

Goldman Sachs has a “buy” rating on AU SFB with a price target of ₹979.

Investec said that AU Small Finance Bank remains its top pick among midcap banks as it has significant long-term positives. The move also abates doubts on the tenure extension for its promoter and CEO Sanjay Agarwal.

Shares of AU Small Finance Bank surged 7.7% on Friday to ₹800 after the announcement. With this, the stock has also trimmed its losses over the last one month, thereby extending its year-to-date gains to nearly 40%.