Mahindra Finance says not applying for bank licence

The Mahindras today said they will not be applying for a bank licence, becoming the first conglomerate which was said to be 'a potential licensee' to opt out, citing "disadvantageous" and unclear norms.
Terming the stiff guidelines put out by the Reserve Bank as "disadvantageous for large, successful NBFCs", it also blamed lack of clarity on "transitional issues" for its decision.
"The RBI guidelines provide for the conversion of non-banking financial companies (NBFCs) into a bank, but do not provide any flexibility for an NBFC and a bank to co-exist for a reasonable period of time," the company said in a statement, adding that board of Mahindra Finance today decided not to apply.

The decision can be reversed if there is any relaxation on this front, it added.
It also expressed reservations about the applicability of the cash reserve ratio or the amount of deposits to be kept with the RBI and the statutory liquidity ratio or the amount of investments in government bonds from inception, and pointed out that accretion of the low cost current and saving account deposits will take time.
"This anomaly, unfortunately, will impose an undue penalty on large, successful asset finance NBFCs with a pan-India network that wish to convert into a bank, as compared to small NBFCs with a limited network," the statement said.

"The current set of guidelines, as clarified, has an adverse economic and operational impact on the business of larger NBFCs," it added.