India’s most marquee name opts out of banking race

Nov 28 2013, 05:58 IST
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SummaryThe list of aspirants for a banking licence lost its most marquee name on Wednesday

The list of aspirants for a banking licence lost its most marquee name on Wednesday with the central bank announcing that Tata Sons — India’s largest conglomerate — had opted out, reports fe Bureau in Mumbai. The $100-billion salt-to software group believes its existing financial services model best supports the group and the interests of its shareholders. A total of 24 applicants remain in the fray for a possible 6-8 new licences; among them are the AV Birla Group, Larsen & Toubro, IDFC, the Bajaj Group and the Shriram Group. Tata Sons is the second applicant to pull out after the Videocon Group, which had applied through group company Value Industries, withdrew its application in September. “Tata Sons has reached a conclusion that the group’s current financial services operating model best supports the current needs of the Tata Group's domestic and overseas strategy, and provides adequate operating flexibility to its companies, while securing the interests of the group’s diverse stakeholder base,” the company said in a release on Wednesday.

The group added it would monitor developments and “look forward to participating in the banking sector at an appropriate time.”

Tata Sons' decision to withdraw its application comes at a time when the new Reserve Bank of India (RBI) governor Raghuram Rajan has hinted at significant changes in the banking structure over the coming years. Since taking over in September, Rajan has repeatedly said that the central bank is exploring the possibility of making licences available on-tap, along with considering differentiated licencing in the banking sector.“If we are moving towards a scenario where there is no scarcity of licences, then the incentive to apply for a banking licence right now reduces,” a senior consultant, who did not wish to be identified, observed. “With the changing landscape, I wouldn't be surprised if a number of players rethink their plans,” added the consultant.

In late August, an RBI discussion paper on banking structures had also 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 noted. In the meantime, the stringent checks and balances being imposed by the RBI on all group entities associated with a banking aspirant are also being seen as a deterrent for large and complex industrial groups. As part of its guidelines, the RBI had also said that the

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