Rel Cap, SREI Infra, LIC Housing Finance likely to set up banks

Non-banking financial companies (NBFCs), including Reliance Capital, SREI Infrastructure Finance and LIC Housing Finance, are looking to explore their chances of starting a new bank after the Reserve Bank of India (RBI) came out with the draft rules for offering on-tap bank licences last week.

The draft norms that 60% of a group’s income should come from financial services disqualifies big business houses, and encourages NBFCs to expand their business and reduce cost of funds.

Kolkata-based SREI Infrastructure Finance is likely to apply for the licence post the release of the final guidelines. “Many NBFCs can meet the capital requirement and the norm on 60% revenues from finance business. We have been in the finance business for the past 26 years…More or less we have everything to be qualified as per the guidelines,” CMD Hemant Kanoria said.

With a banking licence, NBFCs can offer high-ticket loans and generate other sources of capital, including acceptance of deposits, and offer fee-based services.

Apart from Bandhan and IDFC, which were the two entities that bagged the licence in the last round of licensing in 2013, many NBFCs, such as, Tata Sons, SREI Infrastructure Finance, Reliance Capital, L&T Finance Holdings, and UAE Exchange & Financial Services, has offered for the same.

While Anil Ambani-led Reliance Capital said it will demerge its commercial finance business later this year, making the company a holding company, and allowing it to apply for a banking licence.

“It will help a lot of NBFCs as the banking sector is still very under-penetrated, and the RBI would want more finance companies to apply going by the norm of 60% revenue from finance business,” UAE Exchange India MD V George Antony said.

UAE Exchange India is a Kerala-based NBFC that provides financial services, including foreign exchange, gold and small loans. The parent company is based out of Abu Dhabi.

Analysts, however, said NBFCs might not be in a hurry to become a bank, and they would wait to see how the two new banks (Bandhan and IDFC) were faring.

“An open licensing regime should result in a balanced approach to applying for a bank licence, and many NBFCs may want to wait on the sidelines till they understand the merits of the transition from the two banks that got their licences,” Kotak Securities said in a note.

RBI has provided applicants time until June 30 to give their feedback, comments and suggestions on the draft guidelines, post which it will present the final document.