View on NBFC raises queries

RBI is candid in its intention of using more licences to deepen financial inclusion, and also increasing competition. The vision is to see the banks grow in villages and Tier-II and -III towns. The paper takes the bull by the horns and opens a debate on key issues — whether industrial houses should get bank licenses, minimum capital requirements, extent of foreign holding, extent of promoter holding and whether NBFCs can be converted.

One gets a sense that RBI sees the minimum capital requirement somewhere between Rs 500 and Rs 1,000 crore, but I feel a higher cap of Rs 1,000-1,500 crore will be good enough to attract the more serious players. RBI is tending to less than 50 per cent of foreign capital.

RBI’s view on NBFC conversions is raising some interesting questions. NBFCs do play a very strategic role and they should continue to do so. But it seems RBI wants those that get licences to promote new banks, rather than convert.

As far as the industrial houses are concerned, they will need to be careful that inputs from CBI, CVC, etc do not spur a spate of competitive complaints against each other to prejudice applications.

The paper has not, however, given any indication on the approved structure for holding companies of banks. This would have been welcome. It has also asserted that they intend to issue a limited number of licences. My view is that RBI should issue licences as and when they find suitable candidates over the next decade or so.