Industry chambers today strongly pitched for corporates entering the banking space, with all of them stating that a lower capital requirement would be detrimental in the long-run and that deep-pocket industrial houses with good track record be given preference.
Stating that corporates can help bring in the large pool of capital required for banking operations, Ficci Vice President Ashwin Dani said, “Corporates have done tremendous work in serving rural India and this experience could be successfully leveraged through banking business.”
As part of meeting stakeholders to discuss issuing private bank licences, the Reserve Bank of India (RBI) officials today met industry chambers Assocham and Ficci.
Dani emphasised the need for minimum capital of Rs 1,000 crore to ensure entry of only serious and long-term players.
Another industry body Assocham surprised many by demanding that at least 50-100 new private bank licences should be issued this year. “At least 50-100 licences should be issued so that an explosion of competitive spirit happens like it did with the insurance sector,” its President Swati Piramal told reporters after meeting the RBI officials.
Yesterday, CII too had called for letting corporates into the banking saying having smaller banks could potentially lead to higher risk-taking and more volatile earnings. “This in turn could result in lack of focus on financial inclusion and defeat the very purpose of licencing,” it said.
Leading analyst and E&Y India partner and national leader for global financial services Ashvin Parekh told PTI that “people are looking at banking as huge opportunity now. But once the final guidelines are in, and the RBI tells them that this is an opportunity with enormous responsibility, many will turn back. And only very serious players will be ready to shoulder that responsibility. And that’s when men will be separated from boys.”
Parekh further feels the final licensees could well be joint ventures between corporates, NBFCs or MFIs (microfinance institutions), where the corporates could mobilise capital while NBFCs and MFIs could chip in with their domain expertise.
It can be noted that many have raised their reservations about letting the corporates into the banking arena, fearing potential conflicts of interests. Also, it has been widely speculated that the regulator may at best issue six new licences in the first round. The RBI had in August floated a discussion paper on issuing new licences and sought opinions till September 30.
In the discussion paper floated in August, the RBI had listed pros and cons of keeping minimum capital requirement at a low level of over Rs 300 crore, middle-level of Rs 500 crore and a high level of Rs 1,000 crore. And the all the industry bodies have pitched for the top level capital requirement, clearly suggesting their inclination towards the corporates.
However, industry observers feel that this is initial excitement phase and there won’t be many takers around when the final print is revealed.
“It takes around Rs 1,000 crore and time to build a business…Our shareholding should not suddenly come down. May be in 10 years we can (come down to the stipulated 10 per cent),” Piramal of Assocham said.
The chambers and representatives from consultancy firms like PricewaterhouseCoopers and a body of microfinance institutions are expected to call on RBI officials met Deputy Governor Usha Thorat.
The Ficci delegation also suggested a few safeguards pertaining to exposure of applicants to the realty sector. It said that the property exposure in terms of assets should not be more than 10 per cent of the total assets of the group, but Assocham differed saying there is no harm in allowing realty players into the banking arena.
Besides, Ficci said the ownership and control of the realty arm should be separate from that of the financial services business, including the bank. There should be no common directors between the property arm and financial services arm of the group, apart from strictly prohibiting any inter-company transactions between the bank and the realty arm, Ficci said in its representation.
It also recommended that upfront ownership by the promoter be maintained at a minimum of 40 per cent with a maximum share of 100 per cent upon commencing banking operations.
