The Reserve Bank of India (RBI) has returned the application of Ujjivan Small Finance Bank for conversion into a universal bank, citing concerns over the bank’s concentrated loan portfolio.
The bank had applied for voluntary transition to a universal bank in February 2025 as part of its long-term growth strategy. However, in a letter dated April 13, 2026, RBI advised the bank to reapply after achieving better diversification in its loan book.
Reason for Rejection
RBI acknowledged that Ujjivan has made recent efforts to diversify its loan portfolio, but noted that there is still significant scope for improvement.
The central issue remains the high concentration in certain loan segments, particularly microfinance, which increases risk and does not align with the requirements of a universal bank.
Loan Portfolio Overview
As of December 2025:
- Total Gross Loans: ₹37,057 crore (22% year-on-year growth)
- Loan Mix:
- Microfinance loans: 37% share (₹13,685 crore)
- Housing loans: 22% share (₹8,231 crore)
- Secured loans: 48% of total portfolio
Future Target
The bank aims to increase the share of secured loans to 65–70% by March 2030.
Financial Position
- Operations started in February 2017
- Branch network: 777 branches
- Asset Quality:
- Gross NPA: 2.4%
- Net NPA: 0.6%
These figures are within RBI’s prescribed limits, but loan diversification remains a key concern.
RBI Guidelines for Universal Banks
To become a universal bank, small finance banks must:
- Have a minimum net worth of ₹1,000 crore
- Maintain:
- Gross NPA below 3%
- Net NPA below 1%
- Show:
- Consistent profitability
- At least 5 years of satisfactory track record
Industry Context
Ujjivan is among the small finance banks that have applied for universal bank status.
- AU Small Finance Bank received RBI’s approval in 2025
- Jana Small Finance Bank application was also returned earlier
Previously, universal bank licences were granted to Bandhan Bank and IDFC First Bank in 2015.
Conclusion
RBI’s decision highlights that diversification of the loan portfolio is critical for small finance banks seeking to become universal banks. While Ujjivan meets most regulatory requirements, improving its loan mix and reducing dependence on microfinance will be essential for future approval.