After RBI nod, scramble for banking licences begins

Written by Vishwanath Nair | Mumbai | Updated: Feb 24 2013, 05:34am hrs
With the Reserve Bank of India (RBI) having opened up the field for banking licences, large business conglomerates and non-banking finance companies (NBFCs) are getting cracking with their applications. While it is a known fact that well-diversified NBFCs were waiting for RBI to invite applications, broking firms like Reliance Capital and Religare Enterprises and realty players like Indiabulls, have also shown keen interest to apply for licences.

On Friday, the central bank announced its final set of guidelines for new banking licence applications, where it allowed all private and public companies to apply. While the new banks need only R500 crore as initial equity capital, applicants need to be financially sound with a successful track record of running their business for at least 10 years.

For instance, L&T Finance Holdings has been in acquisition mode since 2012, having acquired a mutual fund company, a housing finance firm and an auto finance company to turn itself into a well-diversified NBFC, paving its way to becoming a bank. The company is also reportedly in talks to buy Morgan Stanleys wealth management business.

With deposits and other banking services, we shall get to interact with all customers on all grounds; it increases brand recall and increases business opportunities. It diversifies our sources of funds as well, said N Sivaraman, president and wholetime director, L&T Finance Holdings.

NBFCs have the option to convert themselves 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 shall have a minimum net worth of R500 crore, the central bank said.

These companies may also convert into a bank and divest the activities which banks are not allowed to undertake departmentally. In such a case, the bank shall have a minimum net worth of R500 crore. Moreover, with the central banks clause to open 25% of bank branches in unbanked rural centres, which have a population up to 9,999 as per the latest census, NBFCs with a mighty rural presence like Mahindra & Mahindra Finance are keen to apply for a banking licence.

Sam Ghosh, chief executive officer, Reliance Capital, said the guidelines are forward looking and Reliance Capital will be interested in applying for a banking licence.

We are most eminently eligible for a bank. That too, not just going by what the guidelines say, but also going by our successful track record of more than 10 years as a leading financial services conglomerate, said Ajit Mittal, group executive director, Indiabulls Group.

Public sector major Power Finance Corporation (PFC) had also hired Deloitte to help it evaluate various options for diversifying into new businesses, including applying for a new bank licence, as the state-run lender fears its current business model may not be sustainable in the long run.