RBI wants new banks but it may just have put off probables

Reserve Bank of India (RBI) has issued final guidelines for on-tap universal banking licences in India. Many have been eyeing these licences as banking sector in India has been a closed one for a long time.

With an aim of keeping large corporate houses at bay, RBI made it clear that they are ineligible for opening their own banks. RBI said that companies with more than 40% of total business from non-financial activities cannot apply for new banks.

This takes out the biggest conglomerates in India from the possibility of owning a bank, namely; Tatas, Birlas, Ambanis, et al.

To tighten the rules further, RBI said that corporates cannot hold more than 10% in a new bank. This means that even though mega corporate houses in India cannot own a bank, they can still find solace by owning one-tenth of it.

India’s banking sector has been suffering from a non-performing assets (NPAs) issues for the past few years and this could have been one of the reason why RBI chose to keep big businesses away.

Top 10 corporate groups in the country owe Rs 5.7 lakh crore to banks, minister of state for finance Santosh Gangwar told the Rajya Sabha on Tuesday.

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Broking firm Religare, in a note on the issue, said that there may not be many takers for new banking licences.

Parag Jariwala and Vikesh Mehta of Religare wrote, "We don't see many NBFCs converting into banks given the stringent guidelines and statutory norms. Thus, though on-tap, licensing will be limited.”

They further said that even non-banking financial services (NBFC) companies may find the new rules onerous.

"We think large NBFCs would refrain from applying given the onerous statutory compliance requirements," the duo wrote.

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Business Standard, on Tuesday, reported, “Stringent regulatory framework applicable to a bank such as meeting priority sector lending norms, focus on financial inclusion, and statutory requirements are also going to serve as deterrent for a few.”

Even though some large NBFCs will be interested, not all of them will rush to apply. "We don't see many NBFCs converting into banks given the stringent guidelines and statutory norms. Thus, though on-tap, licensing will be limited,” Jariwala and Mehta concluded.