In a significant development, the Reserve Bank of India (RBI) has denied Annapurna Finance Limited’s request for a universal bank license, which was submitted in January 2023. The central bank, citing concerns, particularly regarding the lender’s heavy focus on microfinance loans, has suggested that Annapurna Finance consider applying for a small finance bank license instead.

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Sources familiar with the matter have revealed that Annapurna Finance has rejected the RBI’s alternative proposal. According to a source, the company aimed to become a universal bank to expand its operations across various sectors. However, facing the prospect of limited growth as a small finance bank and considering the relatively low market share of small finance banks in the industry, Annapurna Finance opted against this route.

Dibyajyoti Pattanaik

Upon reaching out to Dibyajyoti Pattanaik, the director of the company, he stated that they have not received any official communication from the RBI regarding this matter.

Annapurna Finance recently made headlines with the announcement of Piramal Alternatives Trust, a subsidiary of Piramal Enterprises, acquiring a 10.4% stake in the company for a cash consideration of ₹300 crore.

Industry Concerns

With Bandhan Bank’s loan portfolio heavily concentrated in microfinance loans despite being a universal bank for nine years, concerns have been raised about Annapurna Finance’s ability to diversify its loan book beyond microfinance. Given the high exposure to microfinance, officials at the RBI may have deemed a small finance bank license more suitable for Annapurna Finance. As of December 31, 2023, 87% of Annapurna Finance’s loans were attributed to microfinance. Geographically, the highest share of loans originated from Odisha (18.2%), followed by Bihar (18.3%) and Madhya Pradesh (15.2%), indicating a strong presence outside the lender’s home state.