Shares of AU Small Finance Financial institution (SFB) rallied greater than 6 per cent on Monday after analysts mentioned the lender meets all eligibility standards laid down by the Reserve Financial institution of India (RBI) for acquiring a common banking licence.

This prompted the shares of AU SFB to finish at Rs 639, up 6.5 per cent over its earlier day’s shut. However share costs of most different SFBs ended with average positive aspects or losses.

The RBI had on Friday launched pointers for voluntary transition of SFBs into common banks.

The apex financial institution has laid down qualitative standards of a passable five-year monitor file, which will probably be evaluated publish the appliance made by SFBs.

Apart from, the RBI has additionally specified sure quantitative elements such at the least web value of Rs 1,000 crore, profitability monitor file prior to now two monetary years and assembly capital necessities.

Additionally they embrace gross and web non-performing loans of lower than 3 per cent and 1 per cent, respectively, prior to now two monetary years. Additionally, the SFB needs to be listed and may have a diversified mortgage e book. 

An evaluation achieved by Macquarie confirmed that solely AU SFB meets all the necessities. Its friends lose out on a number of standards. 

“A comparability of listed SFBs clearly reveals that presently solely AU SFB meets all of the quantitative standards for utility for conversion to a common financial institution. Different SFBs should not eligible for the transition as they fail to satisfy the standards. That is primarily due to a non-performing asset (NPA) ratio greater than what the rules require and/or a concentrated mortgage portfolio (microfinance largely),” the brokerage mentioned in a word.

Market gamers mentioned it stays to be seen how quickly AU SFB is all in favour of changing into a common financial institution. That is provided that it’s presently centered on integration with Fincare SFB, which it acquired not too long ago. 

Changing into a common financial institution may help enhance margins and leverage for SFBs.

In accordance with Macquarie, the precedence sector lending (PSL) necessities for SFBs are 75 per cent whereas that for banks are simply 40 per cent. Additionally, the capital adequacy ratio (CAR) is 15 per cent for SFBs and 11.5 per cent for banks. 

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