Select NBFCs rise on hopes of bagging banking licence

Mahindra & Mahindra Financial Services (up 3.84%), L&T Finance Holdings (up 3.21%), Reliance Capital (up 2.16%), Religare Enterprises (up 1.74%), Manappuram Finance (up 1.35%), IFCI (up 0.83%), IDFC (up 0.73%) and Bajaj Finserv (up 0.46%), edged higher.

The BSE Sensex was down 34.43 points, or 0.18% at 19,188.85.

Applicants seeking new banking licences are required to submit their applications to the Reserve Bank of India (RBI) by 1 July 2013.

Entities in the private and public sector and NBFCs will be eligible to set up a bank through a wholly-owned Non-Operative Financial Holding Company (NOFHC), the RBI said. However, they need to have sound credentials, integrity and financials with a successful track record of 10 years.

As per the RBI guidlines, promoter groups with an existing NBFC, if considered eligible for a bank licence, will have three options to set up banks. First, promoter groups with an existing NBFC can promote a bank, if some or all the activities undertaken by the NBFC are not permitted to be undertaken by banks departmentally. In such cases, the activities undertaken by the NBFC which banks are allowed to undertake departmentally, will have to be transferred to the new bank.

Second, promoter groups with an existing NBFC can convert the NBFC into a bank, if all the activities undertaken by it are allowed to be undertaken by a bank departmentally. In such a case, the NBFC must have a minimum networth of Rs 500 crore.

Third, promoter groups with an existing NBFC can convert the NBFC into a bank and divest the activities which banks are not allowed to undertake departmentally. In such a case, the bank must have a minimum networth of Rs 500 crore.

Under the above options, the promoters will have to set up a NOFHC. The NOFHC and the bank set up under it should comply with all the requirements laid down in the guidelines. RBI will consider allowing the bank to take over and convert the existing NBFC branches into bank branches only in the Tier 2 to 6 centres. Existing branches of the NBFC in Tier 1 centres may be allowed to convert into bank branches only with the prior approval of RBI and subject to the existing rules / methodology applicable to domestic banks regarding opening of branches in these centres and also subject to maintaining 25% of the bank branches in unbanked rural centres (population up to 9,999 as per the latest census) required of all banks.

IDFC after market hours on Tuesday, 18 June 2013, said its board has approved a resolution for making an application to the Reserve Bank of India (RBl) for obtaining a banking license based on the guidelines for licensing of new banks in the private sector dated 22 February 2013 and the associated clarifications issued by RBI on 3 June 2013.

Religare Enterprises after trading hours on Tuesday, 18 June 2013, said that the promoters of the company have agreed to dilute their shareholding to 49% in the company to enable the company to qualify for applying for banking license under guidelines for licensing of new banks in the private sector.

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