Mahindra Finance decides not to apply.
By R. Chandrasekaran
CHENNAI: Two big industrial houses have different opinions about the Reserve Bank of India’s guidelines for setting up a banking operation in India. While Anil Ambani-controlled Reliance Capital is preparing itself to seek a banking license, Mahindra Finance decided to drop its idea of applying for a banking license.
In a filing with the Bombay Stock Exchange, Reliance Capital disclosed its tie up with Japan’s Sumitomo Mitsui Trust Bank Ltd. and Nippon Life Insurance Company for the proposed banking venture. Both the Japanese companies will have 4 percent to 5 percent stakes in the proposed bank by Reliance Capital, the main promoter. The company is planning to submit its application soon as the RBI has set a deadline of July 1.
Reliance Capital is already having a tie up with Nippon Life Insurance for its asset management and life insurance business and allowed it to pick up 26 percent stake. Reliance Capital is one of the many companies eying banking entry. JM Financial group has already roped in former Citigroup CEO Vikram Pandit with an eye on banking license, while Religare Enterprises diluted promoter’s stake to 49 percent with a view to meet the RBI’s guideline on eligibility criteria.
There are reports of Tatas also entering the banking space. Aditya Birla group’s Kumar Mangalam Birla-managed Aditya Birla Nuvo’s board has given its nod on Tuesday to apply for a banking license.
Meanwhile, Birla said that the new banking norms were not discriminatory towards big corporations. Speaking on the sidelines of a conference conducted by Federation of Indian Chambers of Commerce and Industry (FICCI), he said, “The banking guidelines are very clear and not discriminatory towards large corporate houses.”
However, Mahindra Finance has a different story and feels the new RBI norms are discriminatory towards big industrial houses. The group, which runs M&M Financial Services, a non-banking financial company, believes that the RBI can impose an unjustified penalty on big asset financing NBFC.
There are others, too, like IDFC and LIC Housing Finance Ltd. planning to start banking operations.
Since the banking sector was thrown open to private sector in the 1990s, this is probably the first time that big industrial and business houses are allowed an entry in the banking space. The final RBI norms make it mandatory for new entrants to have 25 percent of branches in unbanked rural areas. The RBI will also provide 18 months’ time for new banks to commence operations once it issues in-principal approval. However, the new banks will be required to follow cash reserve ratio and statutory liquidity ratio right from the beginning.