Corporates including M&M, L&T, PSUs queue up for banking licences

New Delhi: More than a dozen corporates, including big names such as Aditya Birla Group, M&M, L&T, as well as state-owned PFC, LIC and India Post, will apply to the Reserve Bank for licence to open banks.

While announcing comprehensive guidelines for new bank licences two days ago, the RBI said interested entities can file their applications by July 1. Other entities keen to enter the banking space are IFCI, Shriram Group, Religare, ADA Group, Srei Infra, India Infoline Ltd and IndiaBulls Reliance Industries Ltd and Tata Group, which are speculated to be mulling entry into the banking space, have remained tight-lipped about their plans.

[caption id=“attachment_637413” align=“alignleft” width=“380”] Larsen & Toubro spokesperson said the group would be interested in applying for new bank licence. Reuters[/caption]

Power Finance Corporation (PFC) Chairman and Managing Director Satnam Singh has said the company would seek approval for entering into banking space in the next board meeting. “We qualify in both the categories…either we can set up a bank or convert ourselves into a bank,” he said.

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Larsen & Toubro spokesperson said the group would be interested in applying for new bank licence.

Commenting on the norms, non-banking financial entity Shriram Capital Chairman Arun Duggal said RBI has come up with comprehensive guidelines.

“We remain interested in foraying into the banking space and promoting financial inclusion,” Duggal said, adding that the Group has required capital to enter in the banking sector. As per the new norms, entities with a minimum track record of 10 years would be eligible for licence after clearance from sector regulators, enforcement, investigative agencies such as I-T Department, CBI and ED.

The minimum paid-up capital for setting up a bank will be Rs 500 crore. The cap on the foreign investment, including FDI/FII and NRI, has been set at 49 percent. An official in the Finance Ministry, which controls majority stake in term lender IFCI, said the entity would also like to be considered for new bank licence.

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IFCI lost out on bagging licence in 1993 when two other term lender ICICI and IDBI were permitted to open banks. The company will discuss about foraying into the banking sector in the board meeting, IFCI CEO and Managing Director Atul K Rai said.

Aditya Birla Group CEO Ajay Srinivasan Chief Executive of Aditya Birla Group’s Financial Services said: “Our group remains committed to meeting financial needs of its target customers. We intend to apply for a banking licence.” CEO of Reliance Capital Sam Ghosh said: “We will be interested in applying for a banking licence.” When asked whether IndiaBulls will apply for a banking licence, its Group Director Ajit Mittal said: “We have an open mind. We will take a view. The Board will decide in due course of time.” Mittal also said the group is eligible to get a licence as per the guidelines. He welcomed RBI norms, saying they will lead to better financial inclusion.

As per the norms notified by RBI, on receipt of licence, promoters have to start operations within one year and list the new entity within three years of business. New banks are also required to open least 25 percent of branches in unbanked rural areas.

Commenting on the norms, Haribhakti & Co Partner, Corporate Finance Advisory Services, Kirti Shah said it is evident from the guidelines that RBI will make sure that there is level playing field for new comers and the market remains competitive and will not become over-crowded.

This will open up the field for a broader set of applicants giving RBI a wider choice as it finally decides on 4-5 licences as expected said Rajnish Kumar, Chief Executive Officer, Fullerton Securities and Wealth Advisors. India InfoLine Group Chairman Nirmal Jain said: “This is continuance of reform process, and will go a long way to drive the agenda of inclusive growth”.

He had said recently that he can successfully convert all the 4,000 branches of his Non-Banking Financial Companies (NBFC) business into that of a bank and that his focus will not be the large urban markets. “We welcome the final guidelines from the RBI… We will certainly apply for a licence,” Religare said in a statement. SREI Infra Finance too said it will definitely apply for a banking license.

India has 26 public sector banks, 22 private sector banks and 56 regional rural banks. Ten banks were licensed on the basis of guidelines issued in January 1993. The guidelines were revised in January 2001 based on the experience gained from the functioning of these banks, and fresh applications were invited.

YES Bank was the last to have received a licence in 2004. Of the 10 licences issued in 1993, four banks merged with other lenders over a period of time. Times Bank merged with HDFC Bank, while Global Trust Bank was amalgamated with the state-owned Oriental Bank of Commerce.

Centurion Bank took over Bank of Punjab to become Centurion Bank of Punjab, which merged with HDFC Bank in 2008.

PTI