Equitas Small Finance Bank may apply within a year. Here’s what actually changes when a small finance bank grows up into a full-service one.
The phrase “universal banking licence” sounds far more complicated than it actually is.
In simple terms, it is permission from the Reserve Bank of India to operate as a full-service bank, rather than one confined to a specific segment of the financial system. That distinction is at the heart of a recent announcement from Equitas Small Finance Bank.
Its Managing Director and CEO, P. N. Vasudevan, recently said the bank may apply for a universal banking licence within a year. That is not the same as saying Equitas has already become one. It is simply the next possible stage in the bank’s evolution, and the RBI will scrutinise far more than balance-sheet ratios before deciding.
Start with an ordinary bank
Picture an institution that can do almost everything a customer expects from a modern commercial bank: savings accounts, home loans, personal loans, business credit, credit cards, vehicle finance, even investment products, all within regulatory limits. That broad mandate is what makes a bank “universal.” It doesn’t mean unlimited freedom in finance; it means the bank isn’t restricted to one narrow category of customer or product.
Then what is a Small Finance Bank?
An SFB is also a bank, licensed to take deposits and lend money. But it was created with a specific policy purpose: extending banking access to underserved segments of small businesses, small farmers, micro-enterprises, and low-income households. It was never designed to simply become a smaller HDFC Bank or ICICI Bank.
As these institutions mature, though, some develop the balance sheet, technology and risk systems to compete far more broadly. At that point, staying inside the original specialised framework can start to feel like a constraint rather than a mission.
Equitas fits the pattern
Equitas began with roots in microfinance and has diversified steadily since 2011. Today, small-business loans make up about 40 per cent of its advances, vehicle finance 25 per cent, affordable housing 13 per cent, microfinance 10 per cent, MSME and NBFC lending another 10 per cent, and gold loans roughly 2 per cent.
That diversification matters because the RBI’s 2024 framework explicitly favours SFBs with well-spread loan portfolios when assessing conversion applications, a diversified book carries less concentration risk than one dependent on a single borrower category or economic cycle.
The rules of the road
In April 2024, the RBI formalised a voluntary route for eligible SFBs to convert into universal banks. It isn’t automatic. Among the conditions: the SFB must be listed on a recognised stock exchange, maintain a satisfactory track record over roughly five years, meet capital and asset-quality norms, and submit a detailed rationale for the transition.
Equitas says it already meets the asset-quality bar, with gross NPA below 3 per cent and net NPA below 1 per cent. But numbers alone don’t guarantee approval Vasudevan has pointed to the RBI’s “supervisory comfort” as a separate, less quantifiable test covering governance, risk management, technology and compliance.
That caution looks well-founded. The RBI has already returned universal-banking applications from Ujjivan Small Finance Bank and Jana Small Finance Bank for not meeting its criteria, while AU Small Finance Bank became the first SFB to receive the RBI’s in-principle approval for the conversion, in August 2025. Equitas appears to be taking that lesson seriously, preferring to wait until it feels genuinely ready rather than apply prematurely.
Why it matters beyond the paperwork
For an ordinary customer, nothing changes overnight the branch, the app, the savings account all look the same the next morning. But over time, a universal licence lets a bank build a far broader relationship with its customers: home loans, credit cards, wealth products, larger business financing, all under one roof.
There’s a funding angle too. A broader deposit franchise across retail, business and institutional customers can lower a bank’s cost of funds. Equitas has already seen its “landed cost of money” fall from 12.8 per cent in its first year as a bank in 2017 to 8.2 per cent by March 2026 cheaper funding that can translate into more competitive lending rates.
Equitas currently has around ₹45,000 crore in advances and is targeting ₹1.2 trillion over the next five years nearly a threefold jump. Notably, the bank expects its informal and semi-formal borrower base, which makes up about 90 per cent of lending today, to remain dominant even as that share eases to 70–75 per cent. In other words, Equitas doesn’t see universal banking as abandoning its roots, it sees it as adding layers on top of them.
That is really the whole story in miniature. A universal banking licence is not a reward for being big. It is the RBI’s judgement that an institution is ready to handle the responsibilities that come with being bigger because in banking, growth without readiness is exactly the kind of risk regulators exist to prevent.
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