With India?s biggest conglomerate, the $100-billion Tata Group, throwing its hat into the ring, the hunt for a bank licence is turning out to be exciting. The Reserve Bank of India (RBI) on Monday counted 26 aspirants, a mix of large corporations ? the Tatas, Birlas, Bajajs and Larsen & Toubro ? a clutch of non-banking financial companies (NBFCs) ? DFC and Edelweiss ? and a couple of microfinance institutions, Janalakshmi and Bandhan.
Among those that have decided to give it a miss are India?s most valued company Reliance Industries (RIL) and the diversified group Mahindra and Mahindra. The winners, of course, won?t be known till the end of the year or perhaps till 2014. In terms of personalities, it?s former Citibanker Vikram Pandit who?s stolen the show; Pandit will hold just under 5% in JM Financial?s banking venture.
In the last two decades, the central bank has handed out two dozen licences; 10 of these were given in 1993 and two more 10 years later in 2003 ? Kotak Mahindra Bank and Yes Bank. The biggest success stories would have to be HDFC Bank and ICICI Bank while others like Kotak Mahindra Bank too are doing well, having successfully exploited niches. A few including Global Trust Bank and Centurion Bank had to be bailed out.
The country today has 26 public sector banks, 22 private sector banks, 41 foreign banks and 56 regional rural banks, but more than half the population doesn?t have access to banking services. That?s where the central bank?s financial inclusion agenda comes in. The RBI has mandated that a fourth of a new bank?s branches must be set up in unbanked regions. More than the R500 crore of minimum capital ? not a large amount these days ? the bigger entry barrier will be the RBI?s ?fit and proper criteria? and passing muster will not be easy.
Neither will it be easy for NBFCs to rustle up government securities and cash to fulfill the statutory liquidity ratio (SLR) and the cash reserve ratio. Experts reckon, however, the hit to net interest margin, at no more than 75 basis points and that too for about a year and a half till about half the the wholesale deposits are replaced by retail deposits. When ICICI Bank was formed, it had to buy R18,000 crore of gilts.
While announcing the final guidelines in late February, the RBI refrained from restricting entities that had a significant presence in the real estate and broking sectors from setting up a bank, although it had put in some caveats in the draft guidelines. The central bank appeared to have conquered its fears of ?self-dealing? saying it would check applicants for sound ?credentials and integrity?. The central bank also stipulated that the new bank cannot have any exposure ? whether credit or investments in debt or equity ? to the ?promoters, group entities or individuals associated with the promoter group or the NOFHC? and will count on feedback from investigative and tax agencies to issue licences on a ?very selective basis?.