Shares of Jana Small Finance Bank jumped over 5 percent on June 10 to test the highest level in nearly 8 months after the lender announced it has submitted application before the Reserve Bank of India (RBI) to transition into a universal bank.

In an exchange filing released post market hours of June 9, Jana Small Finance Bank said that it is seeking approval from the RBI for a voluntary transition, in accordance with the 'on tap' licensing guidelines for small finance banks.

According to the latest amended guidelines published by the RBI, here are some of the eligibility criteria for a small finance bank to transition into a universal one:

* The bank has a scheduled status with a satisfactory track record of performance for a minimum period of five years;

* Shares of the bank are listed on a recognised stock exchange;

* The bank has a minimum net worth of Rs 1,000 crore as at the end of the previous quarter;

* It meets the prescribed CRAR requirements for SFBs;

* The lender has reported a net profit in the last two financial years;

* It has gross non-performing assets (GNPA) and net non-performing assets (NNPA) of less than or equal to 3 percent and 1 percent respectively in the last two financial years.

* Jana Small Finance Bank had a net worth of Rs 3,874.31 crore at the end of the previous quarter (Q4 FY25), higher than the required Rs 1,000 crore net worth prescribed by RBI.

* The shares of the lender are already listed on the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE).

The small finance bank reported a net profit of Rs 501 crore in FY25 and Rs 669 crore in FY24. Its NPA ratios also meet RBI's requirements. The bank reported a GNPA and NNPA of 2.71 percent and 0.94 percent in FY25 and 2.11 percent and 0.56 percent in FY24 respectively.

SBI Research in a note said the move is 'Neutral to Positive' for the stock in the short term.

Jana Small Finance Bank CEO Ajay Kanwal said that a definite timeline for universal bank license cannot be quoted at this point of time. "Velocity of deposit gathering should improve with universal banking licence. Credit growth will be better, and credit quality is likely to be better," he told CNBC-TV18. He added that RBI's policy is growth oriented and regulatory actions were ahead of the curve.

Deposit Rates Will Go Down & Will Also See Drop In Lending Rates

There are several benefits for any small finance bank to transition into a universal bank. Firstly, the cost of funding comes down as there is greater customer acceptance, while a lower capital requirement for universal banks will give it higher financial leverage.

Small finance banks are also required to ensure 75 percent of its net credit is towards priority lending sectors (PSLs). For a universal bank, only 40 percent of the net credit has to be allocated towards PSLs.

Unlike small finance banks, universal banks have no restrictions on lending ticket size, which allows access to businesses like corporate banking, Nomura had earlier explained.