CII against 'automatic' bank licence to NBFCs

The Confederation of Indian Industry (CII) on Thursday told the Reserve Bank of India (RBI) that it did not favour automatic conversion of non-banking finance companies (NBFCs) into banks. The industry body sought minimum capital requirement of Rs 1,000 crore for setting up a bank.

“NBFCs, whether part of an industrial group or not, (should) be treated on a par with other applicants and allowed to promote a bank with fresh capital. NBFCs are complementary financial institutions to banks, typically focusing on niches that are underserved and neglected by the normal banking channel,” the industry lobby said in a press statement released after its meeting with the banking regulator.

In August, the banking regulator had come out with a discussion paper on new banking licences and sought the feedback of various participants.

Representatives from industry bodies, including CII, the Indian Bankers Association (IBA) and the Finance Industry Development Council (FIDC), an association of asset financing NBFCs, met RBI Deputy Governors Usha Thorat, Subir Gokarn and K C Chakrabarty on Thursday to discuss the issue of new bank licences.

CII also made a case for allowing industrial houses with experience in financial services into the banking sector, arguing that industrial and business houses are currently permitted to participate in all sectors of the economy open to the private sector.

One of the questions raised was whether public sector entities like Life Insurance Corporation (LIC) should be allowed to set up banks. “We gave the feedback that they should not be allowed to set up banks, as the banking system is already dominated by state-owned entities,” a person who was part of the CII delegation said on condition of anonymity.

The representatives also sought clarification on ‘no direct or indirect exposure to real estate’ that RBI is proposing as a precondition.

“We proposed that RBI set a limit on exposure to real estate assets and also bar any lending to group companies. No common directorship should be allowed,” said the person.

CII said it was open to the idea of tapping foreign shareholder capital but a level-playing field must apply to both foreign shareholders and domestic promoters.

FIDC suggested the central bank, while awarding new banking licences, should give promoters 10 years to cut stake to the prescribed level of 10 per cent.