India Inc making a beeline for banking

Reliance Capital has roped in Japanese investors for banking foray

Anil Ambani group’s Reliance Capital (R Cap) has roped in Japanese investor’s to pick up stake in the proposed bank by agreeing to sell 4-5% stake each to Sumitomo Mitsui Trust Bank (SMTB) and Nippon Life Insurance. Nippon Life had 26% stake in Reliance Life Insurance and in Reliance Capital Asset Management (RCAM), the mutual fund and asset management arm of R Cap.

Reliance Capital is the holding company for businesses like asset management, life and general insurance, commercial and home finance, stock broking, among others.

In a statement issued today, R Cap said it will apply for obtaining a banking licence from the Reserve Bank of India. The banking regulator is in the process of granting fresh licence to open banks and is open to allow corporate and industrial houses – for the first time the sector was opened up for private players. Aspirants are asked to submit applications for a bank licence by 1 July.

The minimum capital requirement to start a bank has been mandated at Rs 500 crore by the central bank.

“Reliance Capital, a part of the Reliance Group, will be submitting an application for a banking licence with RBI. Reliance Capital will be the promoter of the proposed new bank,” the statement said.

SMTB – one of the largest banks in Japan – has experience in retail and institutional banking.

The central bank’s decision to allow new players in the banking has generated strong interest among corporate India with large players like Tata group, Birla Group, L&T expressing their interest to foray into the business.

Business houses like Aditya Birla group and Videocon Industries already secured board’s approval for the making the application, the NBFC arm of engineering major L&T and Tata Capital – the NBFC arm of the Tata group is in the process of obtaining approval.

Leading automaker, Mahindra & Mahindra group which was also keen to enter the sector through its NBFC arm M&M Financial Services, however, decided not to apply due to inadequate transition time to convert a large NBFC into a bank. Unlike NBFCs, banks have to comply with cash reserve ratio and statutory liquidity ratio requirements.

Several NBFCs, however, has secured board’s approval, like IDFC and Religare Enterprises, for foraying into the sector.

Magma Fincorp – a Kolkata based non banking financial company (NBFC) today said that it has received board’s approval to apply for the banking licence. Magma – an asset financing company – but also also provides gold loan and loans to small and medium enterprises (SME).  As of March 2013, the company has assets under management of about Rs 18,000 crore. Its net profit for fiscal 2013 was at Rs 145 crore.