The fresh capital infusion not only gives the NBFC the firepower to ramp up lending but could also prepare it for a rating upgrade, making it cheaper to raise funds in the future | Photo credit: Reuters
In 2013, Chennai-based Shriram Group, through Shriram Capital, along with 25 other entities, threw their hats into the ring for a banking license. However, the Reserve Bank of India (RBI) subsequently granted a universal banking license to only two applicants: IDFC and Bandhan Financial Services. After a long gap, the central bank gave an in-principle approval in August 2025 to the AU Small Finance Bank to transform into a universal bank.
Experts say SFL’s promoter group, comprising Shriram Capital, Shriram Value Services and Sanlam Life Insurance, among others, with support from strategic investor MUFG Bank, can give the banking license a shot within three to four years.
SFL’s case for a banking license could be strengthened by the fact that the lead investor, like other major Japanese investors, will be in favor of rules, which may find favor with the banking regulator.
The NBFC is India’s second-largest non-banking finance company, with assets under management of ₹2.81 lakh crore as of end-September 2025.
The fresh capital infusion not only gives the NBFC the firepower to ramp up lending but could also prepare it for a rating upgrade, making it cheaper to raise funds in the future.
Banking expert V Viswanathan said, “HDFC merged with HDFC Bank because they felt that the advanced NBFC was no more, with the regulations for NBFCs almost on par with banks. All the rules are more or less the same.
“With a banking license, SFL can tap cheap CASA deposits (current accounts, savings accounts). They can go for subsidy/government guaranteed MSME loans. SFL has more than 3,000 branches across India. So it is attractive to go for a banking license.”
Mangesh Kulkarni, Head of Portfolio Management Services at Almondz Financial Services, noted that MUFG Bank has invested good money so far to acquire a 20 percent stake in SFL.
“This will strengthen SFL’s capital adequacy and help it further expand its lending business. The NBFC can leverage the new capital five times over, effectively allowing it to borrow about ₹2 lakh crore more.
“In the short term, return on equity will be a bit negative because equity will increase. But in the long term, there will be value creation,” he said.
Kulkarni felt that since SFL is not part of an industrial house, there is a possibility that if the RBI applies for conversion into a universal bank within three to four years, it will look favorably on it.
Published on December 21, 2025
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