SFBs boost secured lending as they move towards universal bank status

AU, Ujjivan, and Jana Small Finance Banks increase share of secured assets in line with RBI's diversification guidelines for voluntary conversion to universal banks

Small finance banks (SFBs) aspiring to become universal banks have increased the share of secured assets in their loan portfolios to comply with the transition norms on diversified portfolios.

 

Three SFBs — AU, Ujjivan, and Jana — which are eligible to convert to universal banks, reported a higher share of secured assets in their July–September quarter results.

 

While AU has already received the Reserve Bank of India’s (RBI’s) in-principle approval for conversion, the applications of Jana and Ujjivan are still pending with the regulator. These are the only three SFBs that have applied for the transition so far. The RBI’s guidelines for voluntary conversion of SFBs to universal banks emphasise diversification of the loan portfolio, though no specific threshold has been prescribed. As most SFBs were initially microfinance institutions, unsecured loans still account for a significant portion of their books.

 

 

AU SFB leads with high secured exposure

 

AU Small Finance Bank, which already had a higher share of secured loans as it was not a microfinance institution, said loan growth was led by core secured segments, including retail secured and commercial banking assets. Out of its total loan portfolio of Rs 1.23 trillion, the segment excluding unsecured business grew by 22 per cent year-on-year (Y-o-Y).

 

The bank’s unsecured portfolio is also stabilising. It accounted for around 7.6 per cent of the overall portfolio, while 67 per cent was in retail secured assets and 20.7 per cent in commercial banking.

 

“In many ways, Q2 marks the bottoming out of the current cycle with growth staying strong in core businesses, unsecured book beginning to stabilise, uptick in margins and commencement of reduction in credit costs. We expect to see tailwinds in the second half from the onset of the festive season, boost from GST cuts and expected economic recovery,” AU SFB’s management said during the post-earnings call.

 

Ujjivan SFB eyes 65–70% secured mix in five years

 

Ujjivan SFB has also seen an improvement in the share of its secured portfolio, which rose to 47 per cent in the quarter compared with 35 per cent a year earlier, owing to increased focus on the segment. The secured book stood at Rs 16,173 crore.

 

“Our gross loan book grew 3.9 per cent quarter-on-quarter (Q-o-Q) and 14 per cent Y-o-Y to Rs 34,588 crore, driven by our disciplined approach to diversify our asset suite and build a sustainable loan book. This has led to the share of secured loans improving to 47 per cent,” the management said during its analyst call.

 

The bank aims to raise its secured portfolio to 65–70 per cent over the next five years. On the unsecured side, the management said that following the implementation of the MFIN guardrails, the microfinance portfolio is stabilising, with consistent repayment behaviour and improved collection efficiency as of September 2025.

 

Jana SFB targets 95% secured or guaranteed assets

 

Jana's gross loan portfolio stood at Rs 31,655 crore with the share of secured assets was 72.5 per cent as of September 30, compared to 65 per cent a year ago. The management plans to raise this to 80 per cent and move towards having 95 per cent of the total portfolio either secured or covered under a guarantee programme. The bank aims to achieve an 80 per cent secured share and around 15 per cent under guarantee by March 2027.