The Reserve Bank of India is unlikely to issue banking licences to public sector non-banking finance companies (NBFCs). This could put brakes on the banking ambitions of NBFCs such as Power Finance Corporation and Rural Electrification Corporation, which have shown interest in acquisitions in the banking space or securing a new licence.?
The finance ministry is also not keen on giving these entities new banking licences as it would distract them from their key function of financing power projects, which need huge amounts of funds. Instead, the ministry wants these institutions to increase funding to the power sector by mobilising funds from routes available for NBFCs.
The latest draft guidelines on new banking licences issued by the RBI on Monday specifically mention that the new licensees would be from the private sector. There is no clarity on whether PSUs can float a special purpose vehicles to seek banking licences. ???
?The finance ministry had conveyed its views to the RBI on its earlier draft guidelines on new banking licences. Though the final guidelines may not have specific exclusion clause for the public sector NBFCs, these enties may not get official nod to foray into banking,? said a finance ministry official.
?We are not seeking a new banking licence but are exploring opportunities to acquire a bank to reduce dependence on third parties (any bank) for loan disbursals to state sector projects. We will seek clarification on norms once consultants are appointed and give report on whether our current structure will work or some change is required, and whether we should set up a bank or pick up an equity stake in any of them,? said PFC chairman and managing director Satnam Singh.
Earlier, speaking to FE, REC chairman and managing director HD Khunteta had said that the company was seeking clarifications from the government on whether public sector companies could apply for a licence.
Indian Railways Finance Corporation (IRFC), PFC and REC are some finance companies set up to meet the fund requirements in their respective sectors. These companies also enjoy the status of infrastructure finance companies, which allows them substantially relaxed terms from the RBI. It is felt that these could already mobilise funds at very competitive rates, eliminating the need to start banking activities to get cheap retail funds.
The central bank has also lowered the risk weight on loans given by the PSU NBFCs, thereby enabling them to lend more to the power sector. In addition, these entities could mobilise funds at competitive rates by issuing infrastructure bonds.
The finance ministry has already extended the window for giving additional income tax exemption on investment in infrastructure bonds by one year.
Moreover, the focus of the banks that will be given new licences will be more on financial inclusion, which is not the mandate of specialised finance companies.
The draft guidelines have sought views from banks, non-banking financial institutions, industrial houses, other institutions and the public before the central bank can issue final guidelines later this year.
Among other things, the draft has said that the exposure of a bank to any entity in the promoter group shall not exceed 10% and the aggregate exposure to all the entities in the group shall not exceed 20% of the paid-up capital and reserves of the bank.