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Corporate India sets ball rolling for banking play

By Somasroy Chakraborty & Niladri Bhattacharya
August 31, 2011 15:27 IST
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A day after the Reserve Bank of India (RBI) issued the draft norms for new banking licences, a host of companies started the ground work for their banking play.

While companies like Religare and Shriram Group have set up dedicated teams to chart out strategies, microfinance institutions like the Vijay Mahajan-promoted Bhartiya Samruddhi Finance, popularly known as Basix, and SKS Microfinance have also thrown their hat in the ring.

Religare Enterprises has set up an advisory committee comprising experts such as Kiran Karnik and Suman Bery. Religare says it is also open to partnerships with global lenders. "The panel will support the management's efforts in charting out the group's banking strategy and its application for a new banking licence," the company said in a statement.

Chennai-based Shriram Group has also formed a working group to study the draft guidelines and prepare a road map to meet its banking ambitions. According to a research note from Standard Chartered, while the draft guidelines are positive for the banking aspirations of companies like Reliance Industries, Tata Group, Aditya Birla Group and Reliance Capital, they are less positive for existing NBFCs like M&M

Finance and Shriram, as their asset financing businesses will need to merge with the bank.

"First, we need to understand from the regulator whether it will allow us to continue with all our existing businesses or only some of them if we convert into a bank. Only after clarity on that, shall we decide on the structure," said G S Sundararajan, managing director of Shriram Capital.

Interestingly, the RBI suggestions on Rs 500 crore capital and 49 per cent cap on foreign direct investment are seen as hurdles for smaller microfinance institutions, but bigger MFIs see the norms helping them.

The Vijay Mahajan-promoted Basix Group, which own microfinance firm Bhartiya Samruddhi Finance and also has a local area bank serving the rural poor of Andhra Pradesh and Karnataka, says the firm has already put in place a non-operative holding company.

"We have been promoting financial inclusion through our group companies for the past 15 years. We will apply for a nationwide banking licence," said Vijay Mahajan, chairman, Basix. The country's only listed MFI, SKS Microfinance, also says it is open to floating a new bank. "We are reviewing the guidelines and not ruling out the option," said S Dilli Raj, chief financial officer of SKS.

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Somasroy Chakraborty & Niladri Bhattacharya in Mumbai
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