Mahindra Finance decides against becoming bank

The board of directors of Mahindra Finance Monday decided against converting itself into a bank, citing the disadvantages, a company official said.

"We have decided not to apply for a bank license under the current set of Reserve Bank of India guidelines read with clarifications. We shall intimate the RBI accordingly along with the reasons for this decision," the official said.

The RBI guidelines provide for the conversion of non-banking financial vompanies (NBFCs) into a a bank, but do not provide any flexibility for a NBFC and a bank to co-exist for a reasonable period of time.

"The regulations provide that CRR (cash reserve ratios) and SLR (statutory liquidity ratio) will be applicable from inception, even though building of CASA (current and saving accounts) will take some time for a newly converted bank," the official said.

"This anomaly would impose an undue penalty on large, successful asset finance NBFCs with a pan-India network which desire to convert into a bank, as compared to small NBFCs with a limited network," added the official, claiming the current set of guidelines, as clarified, has an adverse economic and operations impact on the business of larger NBFCs.

A time-bound co-existence of a NBFC and a bank in the same group would help set up a sustainable model and address concerns of all stake-holders, including the customer base, both existing and future, the official said.

In fact, such an approach is also consistent with the current structure in place in the Indian banking system.

However, Mahindra Finance said that if the guidelines are amended to permit co-existence of a NBFC and a bank in the same group, or the concerns are addressed in some other manner, it would consider applying for a banking licence.