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The Reserve Bank of India (RBI) has approved a unit of Singapore’s Temasek Holdings to raise its stake in AU Small Finance Bank, a specialized bank in India. Temasek’s unit, Temasek International (I) Pte, which is an indirect subsidiary of the state-owned investment company, is looking to increase its stake in the bank from 5.55% to 8.42%.
AU Small Finance Bank is a relatively new bank in India, established in 2017 to serve the underserved and unbanked population. It has been actively expanding its operations and has already received regulatory approvals to open 450 branches. The bank has a wide geographic presence, with operations in 20 states and over 1,000 Automatic Teller Machines (ATMs) across the country.
The approval from the RBI comes as part of the bank’s plans to raise capital to support its growth and expansion plans. The bank had recently announced a capital raise of INR 1,000 crore (approximately USD 130 million) through a rights issue, which received overwhelming response from investors. The fresh capital will be used to enhance the bank’s capital adequacy ratio, improve its risk assets, and support its expansion plans.
The RBI’s nod to Temasek’s proposal is seen as a positive development for the bank, as it will provide further support to the bank’s growth plans. Temasek’s participation as a shareholder will also bring in international expertise and best practices, which can help the bank to improve its operational efficiency and enhance its services to customers.
The development is also seen as a significant milestone for the Indian banking sector, as it marks the first instance of a international investor getting permission to increase its stake in an Indian bank from the RBI. The move is seen as a step towards further liberalization of the Indian banking sector and its opening up to foreign participation.
It is worth noting that the RBI has been actively promoting the growth of small finance banks, which were established to serve the needs of specific segments of the population, such as rural areas, small businesses, and low-income households. The RBI has also been encouraging private equity participation in the banking sector, which is seen as a key to improving access to banking services for the underserved and unbanked population.