A Rush For The New Banking License

The rush for a banking license has suddenly spiked as the deadline comes to an end on July 1, 2013. This is an opportunity of a lifetime for the new bank aspirants, as no one knows when new licenses would be available next. The last time this was done was a decade ago.

As the deadline for submitting the application draws near, almost every day a couple of companies are announcing their interest. More than 18 companies from the listed space have applied for the banking licenses already, prominent among these being Goldman Sachs. On the other hand, a company like M&M Financial Services has said that it will not apply for a license, while UBS has said that it will surrender its banking licenses.

The list of companies seeking a banking license includes major names like Tata Capital, L&T Finance Holdings, Reliance Capital, Videocon, SREI Infra and Aditya Birla Nuvo. From the brokerage industry, JM Financial, Religare, India Infoline, Edelweiss Financial and Indiabulls have applied. India Post, the Tourism Finance Corporation, IDFC are among the others. It was reported that Power Finance Corporation also expressed interest in association with Rural Electrification Corporation, but there is no update on this.

Speculations are that the RBI will issue a maximum of 7-8 banking licenses. It is not clear when these will be given out, but it is likely that something is heard on this before the end of the fiscal. The transition period (i.e. the period required to set up a bank after the issuance of a license) has been increased from 12 months to 18 months. Also, as per the RBI guidelines, corporates seeking a license will have to form a Non-Operating Finance Holding Company (NOFHC), which shall be owned by the promoters. The aspirants need to have a credible past record of 10 years.

Needless to say, these stringent guidelines are an example of why the RBI stands out as one of the best banking regulators in the world. However, the companies which have applied for a license are faced by their own sets of problems. India Post, which has a huge reach in the country, may have to change its business model as the banking business is not only about accepting deposits. Magma Fincorp has a few pledged shares, which hints at capital inadequacy. A few other companies are also in the insurance as well as in the brokerage business.

The share prices of most of the companies concerned have surged on just the news of the application, so any disappointment on this front may result in a huge destruction of capital. The following is the list of companies that have applied for a banking license (as available in the public domain):

• Aditya Birla Nuvo
• Bajaj Finserv
• BK Modi Group (Promoters of S Mobility)
• Edelweiss Financial Services
• Goldman Sachs
• IDFC
• IFCI
• India Infoline
• India Post
• Indiabulls
• JM Financial
• L&T Finance Holding Company
• Magma Fincorp
• Reliance Capital
• Religare
• Shriram Transport Finance Company
• Srei Infrastructure Finance
• Tata Capital
• Tourism Finance Corporation of India
• Videocon