A man holds two thousand and five hundred Indian rupee banknotes in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

IPO-Ready AU Small Finance Bank On RBI’s Caution List 

  • AU Small Finance Bank placed under RBI’s caution list a day ahead of its IPO.
  • RBI to monitor the foreign shareholding of the company which is hovering around the permissible limit of 49 percent.
  • The limit can be enhanced only after prior approval from the RBI.
  • The Rs 1,912 crore IPO, at a price band of Rs 355-358 per share, opens on Wednesday.

A day ahead of its IPO, AU Small Finance Bank has been placed under the caution list by the Reserve Bank of India to monitor the foreign shareholding of the company which is hovering around the permissible limit of 49 percent.

AU Small Finance Bank's Rs 1,912 crore initial public offering (IPO), at a price band of Rs 355-358 per share, opens on Wednesday.

The small finance bank has already passed resolutions for increasing foreign institutional investors (FIIs) or foreign portfolio investors (FPIs) limit under portfolio investment scheme up to 49 percent of its paid up capital. FIIs, FPIs, global depository receipts, American Depository Receipts, FDI, NRIs, persons of Indian Origin (PIOs) are all the sources – who collectively are not allowed to hold over 49 percent in small finance banks in India.

The limit can be enhanced only after prior approval from the RBI.

In a notification on Wednesday, RBI said the total foreign shareholding through all sources in the company has reached the trigger limit. "Hence purchases of equity shares of this company would be allowed only after obtaining prior approval of the Reserve Bank," it said in a notification.

As per the extant rules, foreign shareholding in small finance banks is governed under foreign direct investment (FDI) policy for private sector banks. The present rule allows an aggregate foreign investment of up to 49 percent under automatic route and it can be enhanced up to 74 percent through an approval process.

The Jaipur-based AU Small Finance Bank was a non-banking finance company earlier -- AU Financiers India. It was one among the 10 entities that were given SFB license by RBI in June 2015. It started operations as an SFB in April this year.