Wednesday, 02 December, 2020


Tata and Birla are planning to open their own bank

‘Raise private bank promoter cap to 26%’ RBI Working Group Suggests Converting NBFCs Into Banks, Other Sweeping Changes
Conrad Doyle | 21 November, 2020, 23:27

The proposals could also allow large non-banking finance companies and niche payment banks to convert into lenders. A committee of the Reserve Bank (Bank) has suggested to change the banking law and offer banking license to the Industrial House. But the decision will depend on how far these players are willing to compromise on higher returns and comply with stringent regulatory norms, in a bid to garner lows cost CASA deposits, which remains a challenge even for existing banks. A Non Banking Financial Company (NBFC) or shadow bank with assets of Rs 500 billion ($6.75 billion) and above may be considered for conversion into a bank after 10 years of operations, the report said.

They should also comply with the additional conditions that are specified to them. "NBFCs with a proven track record, supported by the brand values of reputed corporates, can play a key role in bringing the benefits of banking and economy to the underserved and newer segments", an Aditya Birla Group spokesperson said. The proposal, if accepted, will make Bajaj Finance Ltd, L&T Finance Holdings Ltd, Shriram Transport Finance Ltd, Tata Capital Ltd and Mahindra and Mahindra Financial Services Ltd prime contenders for banking licences. Larsen & Turbo is also India's largest engineering conglomerate.

"Non-operative Financial Holding Company (NOFHC) should continue to be the preferred structure for all new licenses to be issued for universal banks".

According to the working group proposals, banks now under NOFHC structure may be allowed to exit from such a structure if they do not have other group entities in their fold.

While banks licensed before 2013 may move to a NOFHC structure at their discretion, once the NOFHC structure attains a tax-neutral status, all banks licensed before 2013 shall move to the NOFHC structure within five years from the announcement of tax-neutrality.

Banks now under NOFHC structure may be allowed to exit from such a structure if they do not have other group entities in their fold.

Although, banks presently under the NOFHC structure might get permission to exit from the model if they don't have other group entities in their fold.

Reserve Bank may take steps to ensure harmonisation and uniformity in different licensing guidelines, to the extent possible. "If new rules are tougher, legacy banks should also confirm to new tighter regulations, but transition path may be finalized in consultation with affected banks", the report said.

The committee has also recommended raising the initial paid up voting equity share capital for unban cooperative banks (UCBs) transiting to SFBs from the present Rs 100 crore to Rs 150 crore, which it has said has to be increased to Rs 300 crore in five years.

To ensure that entities seeking private banks licence remained adequately capitalised to meet any eventuality, a Reserve Bank of India internal committee has recommended almost doubling of the initial capital and net worth requirements to be eligible for getting a banking licence.

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