On Tuesday, the wait for a licence got shorter after the four-member Jalan committee told the Reserve Bank of India (RBI) which of the 25 applicants it felt were the most eligible. The committee, chaired by former RBI governor Bimal Jalan, also comprised former RBI deputy governor Usha Thorat, former Sebi chairman CB Bhave and financial sector expert Nachiket Mor.
While there has been much talk of how the RBI will give out three or four licences, a central bank discussion paper on banking structures put out in late August last year had noted the need for continuous and differentiated licences. There is a case for reviewing the current stop and go licensing policy and consider adopting a continuous authorisation policy, the paper had observed.
Analysts have pointed out that the new set of banks will not find it easy to wean away market share from the earlier lot of 11 private banks, who set up shop in 1993 and 2003. These banks not only have the best technology, their service standards are also high. However, newer players can hope to take away share from public sector lenders that are strapped for capital and will be for some time. Moreover, these banks arent always able to match the service standards of their private peers.
While prospective entrants have been apprehensive they will need to open 25% of the branches in unbanked areas, a condition imposed only incrementally for incumbents, this might not prove to be as challenging even though some branches will lose money in the initial years.
Those NBFCs that have some existing rural lending infrastructure will have an edge over others. Meeting priority sector lending targets too might not turn out to be as onerous as perceived given the scope of priority sector has also been broadened.
Several NBFCs have been deterred by the condition that the holding company cannot own a separate NBFC with businesses that fall within the banking ambit. There are of course exceptions for businesses where the RBI permits dual structures such as credit cards, factoring, leasing and hire purchase. Players like Shriram Capital have indicated they will consider taking up the bank licence only if their flagship NBFC is kept out of the bank set-up. Industry watchers say Mahindra & Mahindra Finance probably did not apply for a licence for this reason. While there is no disqualification for real estate firms and brokerages, the guidelines say that businesses that are speculative in nature or subject to high asset price volatility will not be permitted.