As the Reserve Bank of India (RBI) paves the way for new players to enter the banking sector, non-bank financial companies (NBFCs) are seeking some clarifications from the regulator before taking the final plunge.
According to a Standard Chartered Bank report, the draft guidelines are tough for most existing corporate groups that have large NBFCs.
“M&M Finance, Shriram and LIC Housing had earlier indicated they would like to retain their current NBFC operations and also float a bank. That option is no longer valid,” a Standard Chartered Bank report said.
The Shriram Group has already put in place a team to study the draft guidelines and formulate a road map for their banking foray, but will take up certain issues with RBI relating to the type of business that might come under the purview of the banking activities, profitability and listing of the new bank.
The company, though, has no reservations on having a fourth of the bank branches in unbanked areas, but said building a profitable model suiting the regulator’s mandate of financial inclusion is a key issue.
“Merely having a branch presence does not mean financial inclusion. The challenge is to develop a model which would enable us to carry on the business profitably and cover the unbanked areas as mandated by the regulator,” G S Sundararajan, managing director of Shriram Capital Ltd, told Business Standard.
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He added the recommendation on listing the bank after a couple of years of operation was not ideal, as the entity might not break even within that time.
The Chennai-based NBFC also seeks clarification regarding the businesses that might be allowed under banking activities. Ideally, the group wants to carry its existing businesses after converting itself into a bank.