Getting deposits at right price will be key for banking: L&T Finance

Bank aspirant says growing branch network and change in mindset are the key focus areas

L&T Finance, considered a strong contender for getting a licence to become a bank, sees developing the deposits portfolio and filling key posts as two founding stones to become a successful lender.

The Reserve Bank of India (RBI) is in the process of issuing new banking licences after a gap of a decade. It is expected to allow only a handful of new entrants, from a large number of aspirants.

“To get the liabilities portfolio at a right price will be key for us, given that we have no experience in that area,”

N Sivaraman, president and wholetime director, L&T Finance, told Business Standard.

“For liabilities, it is important to put the branch network and the right people to mobilise deposits. The transition of our human resources to a banking mindset is also important,” he said. L&T Finance, which is into retail and corporate loans, apart from infrastructure loans, is a non-deposit taking non-banking finance company (NBFC). It has given out Rs 33,000 crore of loans.

While some of the bank aspirants see converting an existing NBFC into a bank as a challenge, L&T Finance says such integration is necessary to produce an optimal outcome. The final guidelines on new bank licences, issued by RBI in February, mandated that the NBFC of a group has to be merged with the bank if it is involved in the type of lending a bank can do.

“We have to make sure that a bank and NBFC do not complete with each other,” Sivaraman said. L&T Finance Holdings, the holding company, undertakes lending functions through three subsidiaries in home loans, infrastructure finance and retail and corporate finance.

The advantage of operating through an NBFC is that it does not have to maintain a  cash reserve ratio and a statutory liquidity ratio; nor is there a restriction in opening branches. Banks have to take prior RBI approval for opening branches, if those are not in unbanked rural centres.

Why does L&T Finance consider itself a strong contender for the coveted banking licence? “We have a successful track record of carrying out the financial services business for a long time. In addition, the shareholding pattern of the company is diversified and transparent,” said Sivaraman.

However, adding, “A licence is not a certainty.”

Emphasising on the sound credentials of promoters, RBI’s final guidelines said the interested group should have a successful record of running their business for at least 10 years. Feedback on the applicants will also be sought from the government’s enforcement and investigative agencies, RBI had said.