RBI may have to set strict banking license norms
By Vaibhav Aggarwal
Mar 2, 2010
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Post budget 2010, the RBI may have to re attend to the banking license norms or adopt even strict measures.

After the Finance Minister's announcement during the union budget 2010-11 that private sector players may obtain fresh bank licenses and NBFC's may get banking license, over a dozen NBFCs are harboring ambitions to convert themselves to banks. Under the current set of RBI guidelines, in order to qualify as a bank, an institution should have a minimum net worth of Rs 300 crore, and no single entity or group of related entities can hold more than 10% in a bank.

There seems to be a chance that the RBI, in a new directive may increase the minimum net worth requirement to at least Rs 500 crore.

"RBI might raise it. It would want to put in place a more stringent criteria. The existing norm of Rs 300 crore was fixed years ago," said Bobby Parikh, managing partner, BMR Advisors.

The large number of non banking asset finance companies eyeing a bank license includes Aditya Birla Group, Tata Capital, Anil Ambani-led Reliance Capital, Malvinder Singh-led Religare group, Muthoot Group, Bajaj Group and Shriram Finance.

"We will certainly apply for a bank license. Depending on the policy direction, we will start a new bank or seek conversion of the NBFCs of the group into a bank," S Natarajan, director, Shriram Capital Ltd, the closely-held holding company of Shriram group said.

"By becoming a bank, we will be able to raise low-cost deposits and provide working capital support to a large number of small enterprises," he added.

Other players like Indiabulls, Exim Bank, SIDBI and IFCI are also expected to look into the prospects of getting a bank license.

On the contrary, Sundaram Finance, a large and one of the older NBFCs has said that it is not interested in getting a bank license.

But the RBI has to rethink over many issues before generating licenses. According to Janmejaya Sinha, Chairman, Asia Pacific, Boston Consulting Group, "Will RBI allow the present NBFCs to convert themselves? Will the regulator give licenses to industrial houses? What will be the level of promoter stake that will be allowed initially? Will RBI allow niche banks to be set like a retail bank, wholesale bank etc or will they have to go for universal bank model? And, what capital level will be there and what will be the fit and proper norm."

The key criterias which RBI may look at before arriving at any conclusion are diversified ownership, distinction of ownership from fit and proper management, ability to infuse.

Capital as required and the track record of institutions, said Viren Mehta, director, Ernst and Young.


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