Action heats up for new bank licence

Religare promoters to cut stake to meet norms; IDFC board gives go ahead

With the deadline to apply for a bank licence fast approaching, action is gaining momentum among aspirants to comply with the Reserve Bank of India (RBI) norms. The deadline for applying for a new banking licence expires on July 1, 2013.

The promoters of Religare Enterprises – billionaire brothers Malvinder Singh and Shivinder Singh – will sell 22.75% stake in the company to meet the Reserve Bank of India's (RBI) eligibility criteria for applying for a banking licence.

Another aspirant, IDFC also said today that its board has approved the proposal for making an application for obtaining a Banking License, based on the guidelines the associated clarifications that were issued by RBI earlier this month.

IDFC official said the institution has been working on business plans (for proposed banking forays) for last couple of months. It has engaged services of panel of advisors with expertise in tax, structuring and business.

Religare promoter’s proposed a stake sale will earn them Rs 1,074 crore (as per Tuesday's closing price of Rs 316 per Religare shares on the National Stock Exchange) and cut their shareholding to 49% in the company.

This is yet another step by the group which is preparing the grounds for entering the banking sector. Earlier, it had inducted former finance secretary Arun Ramanathan  as an independent non-executive director on the board of Religare Enterprises. It had also appointed former Canara Bank chairman AC Mahajan as independent non-executive director on its board.

"Promoters have agreed to dilute their shareholding to 49% in the company to enable Religare Enterprises to qualify for applying for banking licences under guidelines for licensing of new banks in the private sector," the company said in a statement to stock exchanges.

Axis Capital will act as an advisor for the transaction.

Earlier this month, RBI issued clarifications on its new bank licensing norms that stated private players aspiring to enter banking space needs to create a non-operative financial holding company (NOFHC).

"The requirement is that not less than 51% of the voting equity shares of the NOFHC shall be held by companies in the promoter group, in which the public hold not less than 51% of the voting equity of such companies," the central bank said.

So, for Religare to set up the NOFHC public shareholding in the company has to be at least 51%. The company's board asked the promoters to pare their stake in Religare in a meeting on May 23, 2013.

Religare's promoters the Singh brothers are also the erstwhile promoters of pharmaceutical company Ranbaxy. Religare is currently present in broking, mutual fund and insurance businesses. The company had earlier announced its plans to apply for a banking licence.

The banking regulator has decided to allow new entrants in the banking sector after close to a decade. In the final guidelines on new bank licences, which were released in February, aspirants are given time till 1 July for submitting the application along with a board approved business plan.

Some of the other business houses which are likely to apply for bank licence are L&T, Shriram Group, Mahindra & Mahindra, Reliance ADAG group, Tata, and Aditya Birla group, for example.