KMFL's board of directors met on Wednesday to decide to promote a new banking company subject to necessary approvals in order to enter the banking business.

Speaking to The Financial Express, KMFL's executive director Deepak Gupta said that the board has taken an in-principle approval to foray into the banking sector and other details, including capital, and other shareholders will be decided soon. "We thought that setting up a new bank will be a cleaner proposition than taking over an existing one," said Mr Gupta, adding that the company intends to function as a one stop-shop financial services player. According to Mr Gupta, the whole processes of setting up a bank will take a year or two.

The KMFL board has already informed the BSE about the bank proposal and has resolved to make an application to the Reserve Bank of India.

According to the RBI's revised norms for new private sector banks, an NBFC should have a minimum net worth of Rs 200 crore. The NBFCs will have to increase the net worth to Rs 300 crore within three years from the date of conversion. The central bank, however, refused to give permission to large industrial houses to directly promote the bank. Regarding the conversion of NBFCs into a bank, the RBI said that finance companies should have a minimum net worth of Rs 200 crore. These NBFCs will have to increase the net worth to Rs 300 crore within three years from the date of conversion. However, NBFCs promoted by large industrial houses or owned or controlled by public authorities, including local, state and the Central government, have been barred from converting themselves into a bank, the guidelines said.

However, individual companies connected with industrial houses, can take up equity in the new private sector banks up to a maximum of 10 per cent. The 10 per cent limit would apply to all inter-connected companies of large industrial houses. But they would not have the controlling stake in the venture. The guidelines specified that private sector banks would have to maintain an arms-length relationship with the business entities of the promoter group and the companies investing up to 10 per cent of equity. Both have been barred from receiving any credit facilities from the bank. KMFL is one of the country's leading diversified financial services companies, with operations covering auto and consumer Finance, asset management, investment banking, securities trading and research. The Kotak Mahindra Group has an extensive branch network across India - managing relationships with over 500,000 individual customers and 400 corporate houses. KMFL has a presence, either directly or through its subsidiaries, in assetfinancing, investment banking etc. With its entry into life insurance, the broking and distribution business and now recently, into banking, KMFL will expand its product range, offering a full range of financial services products.