Major Setback: Why RBI Just Said ‘No’ to Jana Small Finance Bank’s Universal Banking Dream

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Jana Small Finance Bank
Jana Small Finance Bank

The Reserve Bank of India’s decision to return Jana Small Finance Bank’s application for universal banking status represents a significant milestone in the evolution of India’s small finance banking sector. On October 28, 2025, the Bengaluru-headquartered institution formally announced that its pursuit of full-fledged banking capabilities had been temporarily stalled due to unmet regulatory benchmarks.​

Understanding the Application and Timeline

Jana Small Finance Bank submitted its transition proposal to the RBI on June 9, 2025, following the central bank’s April 2024 framework that established the pathway for small finance banks to upgrade to universal bank status. The institution had operated as a small finance bank since its establishment in 2018 and had crossed the mandatory five-year operational threshold that typically qualifies SFBs for such upgrades.​

The regulator’s response, delivered late on October 27, 2025, did not elaborate on specific deficiencies, prompting the bank’s Managing Director and Chief Executive Officer Ajay Kanwal to characterize the development as a “return” rather than an outright rejection. This distinction carries significance—a return suggests the possibility of resubmission after addressing identified gaps, whereas a rejection would indicate fundamental unsuitability.​

The Regulatory Framework and Jana’s Standing

For small finance banks seeking universal banking licenses, the RBI has established a comprehensive set of eligibility criteria. These include maintaining a minimum net worth of ₹1,000 crore, securing listed status on a recognized stock exchange, reporting consecutive years of profitability, and adhering to stringent asset quality metrics—specifically maintaining gross non-performing asset ratios below 3% and net NPA ratios under 1% for at least two financial years.​

Jana SFB reported gross and net NPAs of 2.87% and 0.94% respectively in its September 2025 quarter, technically within the prescribed limits. However, the bank’s recent financial performance showed some volatility. Net profit declined sharply by 22.5% year-on-year to ₹74.9 crore in the second quarter of FY 2025-26, compared to ₹97 crore in the corresponding previous year period. This profitability compression may have triggered concerns about consistent earnings sustainability—a criterion the central bank views as fundamental for universal banking operations.​

Market Reaction and Business Implications

The announcement immediately impacted Jana SFB’s equity valuation, with shares declining between 2.79% and 5.79% on the announcement day, reflecting investor disappointment about delayed expansion plans. The stock’s decline underscored market expectations that the upgrade would enhance the institution’s ability to diversify revenue streams and reduce the cost of funds—critical factors for competitive positioning against established universal banks.​

Kanwal acknowledged that the inability to access universal banking status would postpone benefits from the liability side of operations. Specifically, he noted that securing universal bank status would have substantially reduced the bank’s funding costs, an advantage now deferred indefinitely. Conversely, from an asset perspective, Jana SFB’s operations remain largely unaffected, as the institution continues performing most activities permitted to universal banks, with the notable exception of co-lending arrangements.​

The Competitive Landscape

Jana SFB’s regulatory setback arrives amid divergent outcomes for peer institutions pursuing similar transitions. AU Small Finance Bank, Jaipur-based and substantially larger than Jana, achieved the distinction of becoming the first SFB to secure RBI’s in-principle approval for universal banking conversion in August 2025. Ujjivan Small Finance Bank’s application, submitted earlier in February 2025, remained under review with expectations for a decision by December 2025.​

The differential treatment among applicants highlights the RBI’s granular assessment approach, where each institution’s financial trajectory, governance framework, and operational excellence receive individualized evaluation rather than formulaic approval.

Strategic Path Forward

Jana’s management team outlined plans to engage directly with senior RBI officials to comprehend the specific concerns underlying the return decision. Kanwal indicated that once the deficiencies were identified and rectified, the bank would resubmit its application, though no timeline was provided. This approach—seeking regulatory feedback before reapplication—reflects a collaborative methodology that could prove more productive than proceeding through multiple rejections.​

The institution’s underlying business fundamentals remain solid. With 4.6 million customers spread across 185 cities and over 3,300 employees, Jana SFB operates an extensive network focused on affordable housing loans that constitute approximately 73% of its loan portfolio. The bank’s priority sector lending stands at 90%, substantially exceeding the RBI-mandated 75% threshold, demonstrating commitment to financial inclusion objectives.​

Broader Implications for the SFB Sector

Jana’s regulatory disappointment signals that the RBI maintains stringent standards for universal banking conversions. While the framework explicitly permits transitions, the central bank’s practical implementation reflects high scrutiny regarding financial stability, earnings consistency, and asset quality sustainability. This approach protects the banking system from premature or inappropriate upgrades while encouraging SFBs to strengthen operational excellence before pursuing transitions.

For Jana Small Finance Bank, the current setback need not signal permanent exclusion. The institution’s operational infrastructure, customer relationships, and market positioning remain intact. By systematically addressing the specific concerns flagged by RBI, the bank maintains a viable pathway toward eventual universal banking status, positioning itself for potential resubmission within the medium term.​

The decision ultimately reflects the RBI’s continued emphasis on prudential banking standards, even as it gradually opens pathways for eligible institutions to expand their scope of operations.

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