Jana Small Finance Bank (SFB), one of India’s largest small finance banks, has hit a regulatory roadblock in its plans to evolve into a full-fledged universal bank. The Reserve Bank of India (RBI) has returned the bank’s application for a universal banking licence, citing non-fulfilment of eligibility criteria outlined under the 2024 framework for small finance banks. The move delays Jana SFB’s ambitions to join the ranks of mainstream commercial banks, a transition several small finance banks (SFBs) are currently aspiring to achieve.
In a filing to the exchanges on Tuesday, Jana SFB said that its application seeking voluntary transition into a universal bank was returned by the RBI as it did not meet the conditions prescribed under the new guidelines. “We have received communication from the Reserve Bank of India returning our application for transition into a universal bank. The decision has been based on the current eligibility framework,” the bank said in a statement.
Jana SFB had filed its application earlier this year, in FY26, following what it described as two consecutive years of strong performance. By the end of FY25, the bank had managed to bring its gross non-performing assets (NPA) below 3 per cent and its net NPA ratio below 1 per cent, thereby meeting one of the key criteria required for eligibility. Despite this progress, the central bank appears to have found gaps in Jana’s compliance with the comprehensive set of conditions outlined for SFBs aspiring to transition into universal banks.
The announcement had an immediate market impact. Shares of Jana SFB fell by 1.72 per cent to ₹448.85 on the Bombay Stock Exchange (BSE) during Tuesday morning trade, as investors reacted to the RBI’s decision.
The RBI’s 2024 Framework for SFB Transition
The Reserve Bank of India in 2024 introduced a new set of norms for small finance banks looking to graduate into universal banks. The move was designed to provide a structured pathway for well-performing SFBs to expand their business models, customer base, and product offerings, provided they demonstrated financial stability and operational maturity over time.
According to the framework, only listed small finance banks with a minimum net worth of ₹1,000 crore and scheduled bank status are eligible to apply for a universal banking licence. Furthermore, the applying bank must have a satisfactory operational track record of at least five years and must have remained profitable throughout that period.
The framework also imposes strict asset quality requirements: to qualify, an SFB must maintain gross NPAs below 3 per cent and net NPAs under 1 per cent over the preceding two financial years. These thresholds are meant to ensure that only financially robust and well-governed SFBs are allowed to transition into larger, risk-bearing institutions.
AU SFB Leads the Way, Ujjivan Awaits Word
Among the SFBs that have applied for the universal banking licence, AU Small Finance Bank has already emerged as the first to receive approval from the RBI earlier this year. AU SFB’s elevation marks a significant milestone in India’s banking sector, as it transitions into a universal bank capable of offering a full range of retail and corporate banking services at par with larger institutions.
Ujjivan Small Finance Bank, another prominent player in the segment, had applied in February 2025 and is still awaiting a response from the RBI. With Jana’s application being returned, industry watchers now believe the regulator is likely taking a cautious, case-by-case approach while evaluating these transitions, focusing closely on governance standards, risk management practices, and long-term sustainability.
Jana SFB’s Journey and Performance
Founded in 2018, Jana Small Finance Bank has grown rapidly to become the fourth-largest SFB in India. The Bengaluru-headquartered lender serves over 12 million customers across 23 states and two Union Territories, operating through a wide network of 802 branches.
Initially launched as a microfinance institution before transforming into a small finance bank, Jana’s mission has been to promote financial inclusion, especially among underserved and unbanked segments of society. Over the years, it has diversified its portfolio to include micro, small and medium enterprise (MSME) loans, affordable housing finance, and retail deposits, while continuing to focus on small borrowers.
In its financial performance for FY26, Jana SFB reported steady growth. The bank posted a net profit of ₹75 crore in the second quarter and ₹177 crore for the first half of the year. Its net interest margin (NIM) stood at a healthy 6.6 per cent, reflecting strong lending profitability. Asset quality indicators also showed improvement, with gross NPAs at 2.8 per cent and net NPAs at 0.9 per cent—figures that technically met the RBI’s asset quality benchmarks.
However, the RBI’s assessment takes into account not just financial metrics but also qualitative factors such as governance standards, risk controls, compliance culture, and management track record. It is likely that the bank’s relatively short operating history as an SFB, or certain governance aspects, may have influenced the central bank’s decision to return the application rather than reject it outright.
What Lies Ahead for Jana SFB
While the return of its application is a temporary setback, it does not necessarily close the door for Jana SFB’s future ambitions. The bank can reapply once it fully meets all prescribed criteria and addresses any gaps identified by the RBI. For now, the lender will continue to operate under its existing small finance bank licence, focusing on strengthening its balance sheet, improving asset quality further, and expanding its retail and MSME portfolios.
Industry experts note that the RBI’s move underscores its cautious stance toward universal banking conversions. “The central bank is ensuring that only those institutions with proven track records, robust governance, and consistent profitability are allowed to scale up. This is in the interest of financial stability,” said a senior banking analyst.
The development also sends a signal to other SFBs planning to apply under the 2024 framework. They will need to ensure full compliance with both quantitative and qualitative standards before submitting applications, as the RBI is likely to maintain a high bar for approval.
Jana’s management has expressed confidence in meeting the eligibility norms in due course. With steady profitability, declining NPAs, and a growing footprint, the bank believes it is well-positioned for eventual transition. For now, however, it joins the waiting list alongside Ujjivan SFB—both keeping a close eye on the RBI’s evolving stance toward small finance banks aspiring for universal status.
