AU, Ujjivan, and Jana Small Finance Banks raise their proportion of secured assets in accordance with the RBI’s recommendations for voluntary universal bank conversion.
In order to meet the transition standards for diverse portfolios, small financing banks (SFBs) that want to become universal banks have raised the proportion of secured assets in their lending portfolios.
In their July–September quarter results, three SFBs that are qualified to become universal banks—AU, Ujjivan, and Jana—reported a larger percentage of secured assets.
The petitions of Jana and Ujjivan are still pending with the Reserve Bank of India (RBI), despite the fact that AU has already obtained the RBI’s in-principle permission for conversion. To yet, only these three SFBs have submitted applications for the changeover. Although there is no set criterion, the RBI’s recommendations for the voluntary conversion of SFBs to universal banks place a strong focus on loan portfolio diversification. Since the majority of SFBs were originally microfinance organizations, unsecured loans continue to make up a significant amount of their total revenue.
With a high level of secured exposure, AU SFB leads
Since it was not a microfinance organization, AU Small Finance Bank already had a larger percentage of secured loans. According to the bank, core secured categories, such as retail secured and commercial banking assets, drove loan growth. Y-o-Y, the sector that does not include unsecured business expanded by 22% of its overall loan portfolio of Rs 1.23 trillion.
Additionally, the bank’s unsecured portfolio is steadily increasing. It made up around 7.6% of the whole portfolio, with retail secured assets accounting for 67% and commercial banking for 20.7%.
With growth in core businesses continuing to be robust, unsecured book starting to stabilize, margins increasing, and the start of credit cost reductions, Q2 is essentially the bottoming out of the current cycle. During the post-earnings call, the management of AU SFB said, “We anticipate tailwinds in the second half from the start of the Christmas season, boost from GST cuts, and projected economic rebound.”
Five years from now, Ujjivan SFB hopes to have 65–70% secured mix
A greater emphasis on the secured portfolio has also helped Ujjivan SFB’s portion in the portfolio, which jumped to 47% in the quarter from 35% a year earlier. The value of the secured book was Rs 16,173 crore.
Due to our methodical strategy to diversify our asset portfolio and create a sustainable loan book, our gross loan book increased 3.9% on a quarter-over-quarter (Q-o-Q) basis and 14% on a year-over-year basis to Rs 34,588 crore. As a result, the percentage of secured loans has increased to 47%, the management said on its analyst call.
Over the next five years, the bank wants to increase the percentage of its secured portfolio to 65–70%. Regarding the unsecured side, the management said that as of September 2025, the microfinance portfolio is stabilizing due to consistent repayment behavior and increased collection efficiency as a result of the MFIN guardrails’ implementation.
The goal of Jana SFB is 95% guaranteed or secured assets
As of September 30, Jana’s total loan portfolio was at Rs 31,655 crore, or 72.5% of secured assets, up from 65% a year earlier. The management intends to increase this to 80% and work toward having 95% of the whole portfolio covered or protected by a guarantee scheme. By March 2027, the bank wants to have 80% of its shares protected and around 15% under guarantee.