With barely a week to go before aspirants for a bank licence need to submit their applications, some of the country’s largest corporates may pass up the opportunity to set up a bank. Deterred by the Reserve Bank of India?s (RBI) stringent conditions, M&M Finance ? the NBFC (non-banking financial company) arm of the Mahindra Group ? a promising candidate, announced on Monday it would not be applying for a bank licence.
?The current set of guidelines, as clarified, has an adverse economic and operational impact on the business of larger NBFCs,? the company said in a statement to the exchanges. The company explained that the guidelines did not allow an NBFC and a bank to co-exist for a reasonable period of time. ?The regulations provide that CRR and SLR will be applicable from inception, even though building of CASA will take some time. This anomaly, unfortunately, will impose an undue penalty,? the statement added.
Shares in M&M Finance fell 8% to Rs 236.40 in trade on Monday.
Reliance Industries too has decided not to set up a bank. Concerns over inadequate returns from the banking business and the regulatory risks linked to the sector were some of the reasons that kept Reliance away from the banking business, say industry sources.?The financial sector is not a core area of business for Reliance Industries,? a source close to the company said, reiterating the group is focused on oil & gas for now.
While Reliance Industries and M&M have opted out, the Tata Group may still apply for a banking licence under the Tata Capital brand. However, they too, are facing challenges in structuring their application, including finding a way to reduce the linkage between Tata Motors & Tata Capital. Tata Capital provides financing services for Tata Motors’ products, which may lead to concerns of ?concentration risk? on the balance sheet of Tata Capital, explained senior industry consultants.
The RBI had issued its final new bank licence guidelines in February this year, allowing corporates to seek an entry into the banking sector. Since then, however, the slowing economy and the tough conditions attached by the RBI, seem to have forced corporates to assess the business more carefully.
? With a slowing economy, the banking business is not as attractive as many others in terms of returns and corporates will find it difficult to justify the investment,? said a senior industry consultant.
Standalone NBFCs, however, seem to be keen. On Monday, SREI Infra Finance?s board approved the application for a licence. Srei has consolidated assets under management of Rs 33,300 crore and has detailed plans to set up a bank focussed on infrastructure and rural finance. Shares in SREI Infra Finance closed 2.15% lower on Monday, while those of Edelweiss Financial, whose board approved an application for a banking licence on Monday, traded flat. Edelweiss may need to reduce its exposure to the capital market given RBI?s caution about firms whose group activities are subject to high asset price volatility. IDFC, Religare and Tourism Finance Corporation of India have also got the go-ahead from their respective boards. The RBI has set a deadline of July 1to receive applications for a banking licence, following which they would be assessed internally as well as by an external committee.