RBI Rejects Ujjivan SFB’s Universal Bank Licence Over Loan Portfolio Concerns

Key Takeaways

• The RBI has returned Ujjivan Small Finance Bank's universal banking licence application. The bank has been asked to reapply only after demonstrating a more diversified loan portfolio.
• Ujjivan had submitted this application in February 2025. Secured loans made up only 39% of its total loan book at the time of application.

The Reserve Bank of India (RBI) has returned Ujjivan Small Finance Bank's application to convert into a universal bank. The bank said the RBI took note of its recent efforts toward diversifying its loan portfolio but felt there was still room for progress. The RBI advised Ujjivan to consider reapplying after demonstrating a more diversified loan book. 

This is a setback for Ujjivan Small Finance Bank in the short term. Ujjivan customers will miss out on broader credit products, investment services, and flexible deposit schemes until the licence is granted. This upgrade in status could have meant access to better and more varied financial services for the millions of customers it serves, mostly from lower-income segments. 

What does this mean for Ujjivan's 93,00,000 Customers?

A transition from a small finance bank to a universal bank would allow lenders like Ujjivan to offer a wider range of services and expand beyond their original mandate of serving underserved segments. Here is what customers stand to gain once the licence is eventually approved:

RBI's pushback could force the bank to speed up its diversification plans, which directly benefits borrowers. Ujjivan's secured portfolio had risen to 47% of its loan book in the July-September 2025 quarter, up from 35% a year earlier. A stronger and more balanced loan book means less risk for depositors and more stable credit access for customers in the long run.

What the Bank Says, and What Needs to Happen Next?

Ujjivan's MD and CEO, Sanjeev Nautiyal, had previously laid out a road map. The unsecured book has come down from 70% in FY24 to 54% today. The bank targets a secured-to-unsecured ratio of 65-70% by March 2030 and a loan book of Rs 1 trillion by FY30.

The RBI requires SFBs seeking universal bank status to provide a detailed rationale for conversion, with preference given to banks with a diversified loan portfolio. Experts point to these steps as critical for Ujjivan to reapply successfully:

• Grow secured lending faster, especially in housing finance, MSME, and vehicle loans.
• Bring the unsecured (microfinance-heavy) portion of the book below 50%.
• Maintain gross NPA below 3% and net NPA below 1% for two consecutive years.
• Demonstrate consistent profitability and capital adequacy

Conclusion 

The RBI's decision is not a rejection in the absolute sense but a strong signal that Ujjivan is not yet ready for the next step. The bank has made visible progress, but the regulator wants more before granting a full upgrade. AU Small Finance Bank has already received the RBI's in-principle approval for the transition, making it the first SFB to do so. Ujjivan now has to keep up with this speed. It needs a stronger and more balanced loan portfolio to get a universal banking licence.