The move is expected to boost global capital inflows and strengthen the bank’s expansion agenda.

In a significant policy development aimed at deepening global participation in India’s financial sector, the Ministry of Finance has approved raising the foreign investment limit for AU Small Finance Bank (AU SFB) from 49% to 74%. The decision places AU SFB in line with the broader FDI framework applicable to private-sector banks, offering the institution a wider gateway to international capital at a time when competition and growth ambitions in the small finance banking space are accelerating.

While the ceiling has been raised to 74%, any foreign investment beyond the existing 49% threshold will continue to require prior government approval. This ensures regulatory oversight even as the cap expands. As of September 30, 2025, foreign portfolio investors held around 34.5% in the bank, leaving considerable headroom for future inflows.

For AU SFB, India’s largest small finance bank by market value, the enhanced limit is expected to unlock access to long-term foreign capital, bolster its lending capacity, support branch expansion, and strengthen its balance sheet. Market analysts anticipate heightened interest from both foreign direct investors and global portfolio funds, potentially leading to passive inflows once approvals begin to materialise.

The move also signals the government’s intent to encourage stronger capital formation within the small finance banking segment, which has grown rapidly since its inception but continues to face pressure to scale sustainably. With rising demand for retail credit, micro-enterprise lending, and digital banking infrastructure, additional foreign investment could equip AU SFB with the financial muscle needed to pursue new growth avenues.

As regulatory clarity increases and investor appetite strengthens, the enhanced limit may well position AU SFB as a more attractive and globally competitive player in India’s evolving banking landscape.