Former RBI Governor C. Rangarajan has advocated for policy incentives to help the small finance bank (SFB) sector expand. Equitas Small Finance Bank, which posted a Q1 FY27 profit of ₹184 crore, is considering applying for a universal banking license. Investors should note the regulatory challenges, as recent license applications from other sector peers have been returned by the RBI.
Former Reserve Bank of India (RBI) Governor C. Rangarajan has called on the central bank to introduce stronger incentives for the small finance bank (SFB) sector. With only 11 such institutions currently operating nationwide, Rangarajan suggested that the current regulatory framework does not provide enough motivation for the sector to grow or for new players to enter. He made these remarks while visiting the new corporate office of Equitas Small Finance Bank in Chennai.
Performance and Licensing Ambitions
Rangarajan highlighted Equitas Small Finance Bank as a standout performer, pointing to its consistent ability to meet and exceed regulatory benchmarks. This performance has given the bank the confidence to consider shifting from its current SFB status to a universal banking license. Management has indicated that they may apply for this license within the coming year. Such a transition would allow the lender to offer a broader range of financial products and operate with the same flexibility as large commercial banks.
For the quarter ended June 2026 (Q1 FY27), the bank reported a profit after tax of ₹184 crore, marking a turnaround from the loss of ₹224 crore recorded in the same period last year. Business growth also remained steady, with gross advances growing 27 percent year-on-year to ₹47,641 crore and deposits rising 10 percent to ₹48,976 crore. The bank also maintains stable asset quality, with gross non-performing assets (GNPA) at 2.36 percent and net non-performing assets (NNPA) at 0.70 percent.
The Regulatory Hurdle
While the bank’s management is keen to upgrade its license, investors should note that the process is highly rigorous. Gaining a universal banking license is not automatic and depends heavily on the RBI’s assessment of the bank's governance, stability, and long-term viability. The central bank has shown a cautious approach to recent applications. For instance, in April 2026, the RBI returned the universal banking license application submitted by another sector peer, Ujjivan Small Finance Bank, highlighting that regulatory approval remains a significant hurdle for all SFBs.
Monitorables for Investors
Moving forward, shareholders and analysts are likely to track three main areas. First, the management's specific timeline and strategy for the universal banking license application will be important to watch, especially given the regulatory scrutiny observed with peers. Second, the bank's ongoing efforts to reduce its concentration in microfinance and semi-formal lending will be critical for long-term risk management. Finally, while the recent financial performance shows a recovery, maintaining healthy profit margins and deposit growth in a competitive lending environment will remain essential for the bank's case for a banking license upgrade.