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| Usual suspects line up for banking licences |
| BS Reporter / New Delhi Feb 27, 2010, 01:48 IST |
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RBI to issue guidelines soon, will insist on diversified holding.
A host of non-banking finance companies such as IDFC, Aditya Birla Financial Services, Reliance Capital, Religare Enterprises and Indiabulls is planning to queue at the Reserve Bank of India to seek banking licences.
Following Finance Minister Pranab Mukherjee’s announcement of RBI’s intent to grant fresh bank licences, smaller finance companies such as Srei and Shriram Transport have also expressed their intent to approach the regulator.
Foreign banks, most of which operate in the country as branches of an overseas subsidiary, are unlikely to apply given the higher tax that they would have to shell out on setting up an Indian banking company. Besides, many of the global banks are going slow on overseas expansion due to the stress in their home markets. In the last five years, RBI has not given any fresh licences.
“There will be eligibility criteria, which we will work out, and some guidelines, which are already there, like diversified shareholding. NBFCs will be one category of applicants, and any other applicant — whether a corporate or a group of individuals — will be allowed subject to the eligibility criteria. We will look at the criteria that we already have, but the basic principle of ownership and governance will remain unchanged, so we have to work on it,” RBI Deputy Governor Usha Thorat said.
IDFC and Anil Dhirubhai Ambani Group-promoted Reliance Capital had approached RBI for permission to convert the finance companies into banks, which was turned down by the regulator. While Reliance had approached RBI with the proposal at the height of the financial crisis, when liquidity was tight, IDFC held discussions on the matter last year.
Banking sources said that IDFC, which will now be classified as an infrastructure NBFC, might be the only finance company to get a licence, while the others may find it difficult given that their parents are business houses. In the past, RBI had expressed its displeasure in granting licences to industrial houses.
Asked about the prospects of a corporate house getting bank licences, Thorat said: “The basic principle of diversified shareholding will apply to them."
The move comes despite RBI Governor D Subbarao telling Business Standard in an interview in October that the regulator did not plan to allow new players into the banking arena. “The banking system has undergone consolidation in the last few years and more banks will improve penetration, competition and efficiency,” Thorat said.
Finance companies, which are barred from accepting deposits, are keen on getting a bank licence as it will help lower their cost of funds.
“When the first set of licences was given to private players in 1992, RBI had not allowed industrial houses and state government enterprises into the sector. The past 18 years have shown that bank promoters need deep pockets and commitment, and the government and RBI do not want to take any chances with depositors’ money,” said Ashvin Parekh, National Leader-Global Financial Services, Ernst & Young, a consulting firm.
“Applying for a banking licence is a natural progression for any integrated financial services player. Currently, in terms of our distribution and presence, we are larger than most banks in the country with a presence across more than 2,000 locations. We await details on this and once things are clearer, we shall objectively view the situation to see how well it fits in with our overall strategic growth plans,” said Religare Managing Director and CEO Sunil Godhwani.
“We wholeheartedly welcome this initiative and will definitely apply for a licence. The Aditya Birla Group is confident that we will meet any eligibility criteria that might be set,” said Ajay Srinivasan, Aditya Birla Group’s chief executive - financial services.
“This move will potentially open exciting new avenues of growth for Reliance Capital in the future. We await further details and guidelines," Reliance Capital Chief Executive Sam Ghosh added.
“This is a welcome move and we are definitely interested. As and when the norms are finalised, we will apply for a banking licence. Since we serve under-banked customers, it will help us widen financial inclusion,” said R Sridhar, managing director, Shriram Transport Finance.
“A number of countries, particularly the US, benefited immensely when NBFCs were allowed to extend their reach. Any measure which allows the public greater access to capital is good,” said a senior executive from Tata Capital. He declined to comment on whether Tata Capital plans to apply for a banking licence.
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