The Reserve Bank of India (RBI) has rejected Ujjivan Small Finance Bank’s application for a universal banking license due to insufficient diversification in its asset book. The RBI noted the bank’s efforts in diversifying its loan portfolio but deemed further progress necessary before reapplication.
This marks the second recent instance where the RBI has returned a small finance bank’s application for a universal banking license. Previously, the regulator had also returned Jana SFB’s application while granting approvals to other banks for transitions.
Ujjivan SFB reported a gross loan book of Rs. 37,057 crore in Q3FY26, with group loans constituting 45% of the total. The RBI emphasizes the importance of diversifying loan portfolios for small finance banks to reduce reliance on high-risk microfinance, thereby enhancing asset quality and stability.
Diversification into secured loans such as retail, vehicle, and SME loans is encouraged by the RBI to mitigate risks associated with heavy exposure to microfinance. This strategy aims to bolster asset quality, stabilize earnings, and equip SFBs for potential universal bank status.
