NBFCs promoted by big industrial houses best placed for new banking licences

We see NBFCs promoted by large industrial houses — Mahindra & Mahindra Financial Services (MMFSL), L&T Finance (LTFH) and Bajaj Finserv (BJFIN) — as clear frontrunners for new bank licences. The final RBI guidelines for banking licences mandate that a non-financial listco be a promoter of the bank, which will preclude many aspirants.

The bar on PSUs, property developers and stockbrokers has been withdrawn from the final guidelines, but the insistence on NBFC balance sheets being merged remains. There is now clear visibility on the new licences, which are potential game-changers for the winners.

The new bank’s promoter stake has to be housed in an non-operative financial holding company (NOFHC) that is majority owned by a widely-held non-finserv listco. This gives large industrial groups like M&M, L&T and Bajaj an advantage over standalone NBFC/finserv companies.

This new specification negates some other changes like inclusion of property developers and stockbrokers in the list of eligible bidders.

Our reading is that bidding NBFCs have to merge into the new bank at the outset. The guidelines are silent on this, but we think the RBI will stick to its long-held rigidity on meeting CRR/SLR from day one. There will be no grandfathering for priority sector. This is a challenge for players with large balance sheets like SHTF and IDFC — easier for smaller players like MMFS and LTFH.

We see the process moving quickly now — applications have to come in by July 31 and, after initial screening, will be referred to a specially constituted independent advisory

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