New bank licence: M&M Finance opts out of the race

Edelweiss, SREI boards clear proposal for applying; deadline July 1

With only a week left to apply for a new bank licence, the activity among aspirants has gained momentum, with some more entities securing board approval for entering the sector.

Also, at least one hitherto serious aspirant has decided not to pursue the effort, due to the stringent norms.

The closing date for applying is July 1, 5.45 pm, the central bank has said. No later or incomplete applications are to be considered.

Mahindra & Mahindra Financial Services, the non-banking financial company (NBFC) of the Mahindra Group, today said it would not apply for a licence. “RBI guidelines provide for the conversion of NBFCs into a bank but do not provide any flexibility for a NBFC and a bank to co-exist for a reasonable period of time,” it said. On the stipulation that the rules on cash reserve ratio and statutory liquidity ratio which bind banks would also apply from inception on the new entrants, though building up the low cost deposit portfolio will take time, M&M Finance said: “This anomaly will impose an undue penalty on a large asset financing NBFC.”

Adding: “(Only) if the guidelines are amended to permit co-existence of an NBFC and bank in the same group or if concerns are addressed in some other manner, the company will apply for the banking licence.”  

In the final guidelines, RBI had said a non-bank would not be allowed  to do any business that a bank is allowed to undertake. “The current guidelines have an adverse economic and operational impact on the business of larger NBFCs,” said M&M Financial.

But, couple of other entities interested in applying announced their respective boards had formally approved doing so — Edelweiss Financial Services and SREI Infrastructure Finance. Edelweiss said it would transfer the existing merchant banking business to a subsidiary, as a step to comply with the RBI norms for applying. Sources say a 30-member internal team is working on the other aspects of getting a licence, besides having global consultancy  KPMG advising on this. The SREI Infra board also gave formal approval today for an application.

GOING AHEAD

Aspirants that have obtained board’s nod for application

• SREI Infrastructure Finance
• LIC Housing Finance
• Tourism Finance Corporation of India
• Religare Financial Services
• IDFC
• Shriram Capital
• Edelweiss Financial Services

Other prospective applicants

• Reliance Capital
• L&T Finance Holdings
• Aditya Birla Financial Services
• Tata Capital
• Videocon Industries