L&T Finance may have to tweak structure for banking foray

RBI says private players aspiring to enter banking space needs to create a non-operative financial holding company

L&T Finance, one of the aspirants for a new banking licence, might have to tweak its corporate structure following the Reserve Bank of India (RBI)’s clarifications on the new bank licensing guidelines.  

The central bank said private players aspiring to enter the banking space need to create a non-operative financial holding company (NOFHC).

“The requirement is that not less than 51 per cent of the voting equity shares of NOFHC shall be held by companies in the promoter group, in which the public hold not less than 51 per cent of the voting equity,” RBI said in its clarifications released yesterday.

However, in L&T Finance Holdings,the holding company of L&T Finance, parent Larsen & Toubro had 82.54 per cent stake at the end of March. In other words, L&T Finance Holdings cannot set up NOFHC as public shareholding in the company is below 51 per cent.

“RBI has clarified that in a multi-layered holding structure, the minimum 51 per cent public holding requirement will need to be complied by the company that holds the voting equity in NOFHC. Notably, L&T Finance Holdings has 18 per cent float and may find it challenging to directly promote NOFHC,” analysts with Kotak Securities said in a note to clients.

L&T Finance Holdings was seen as one of the favourites to get a new banking licence because its parent Larsen & Toubro has a diversified ownership. Public shareholding in Larsen & Toubro was 96.42 per cent at the end of March, 2013.

“Technically, I don’t think L&T Finance Holdings will be eligible to set up NOFHC. However, considering the track-record and diversified shareholding of its parent, RBI may allow it to promote a bank,” a senior partner with a global consultancy firm said, requesting anonymity.

According to an analyst with a domestic brokerage, Larsen & Toubro may propose to set up NOFHC instead of L&T Finance Holdings to meet the eligibility criteria. L&T Finance Holdings offers diverse range of financial products and services across corporate, retail, housing and infrastructure sectors as well as mutual fund products and investment management services. It has presence across 23 states in India.