By -
Feb 24, 2013
Indian billionaires Kumar Mangalam Birla and Anil Ambani
may set up banks in the world’s second- most populous nation after
rules for procuring licenses were eased to allow new entrants.
Companies with a 10-year track record and “sound credentials” can apply by July 1, the Reserve Bank of India said in a statement on Feb. 22. Foreign ownership will be capped at 49 percent for the first five years, and the lenders are required to set up one-in-four of their branches in villages with less than 10,000 people, according to the statement.
New banks may help Prime Minister Manmohan Singh, who resumed opening up the $1.8 trillion economy in September, to boost credit growth in rural areas as he seeks to revive a market expanding at the slowest pace in a decade. Only 35 percent of India’s adult population has accounts with lenders and other financial institutions, according to the World Bank, compared with the global average of 50 percent.
“Total banking licenses are likely to be limited,” Siddharth Teli, an analyst at Religare Capital Markets Ltd. in Mumbai, said in a note to clients yesterday. “Companies with strong non-financial promoters, a diversified shareholding and a niche retail presence in semi-urban areas have an edge.”
Birla’s Aditya Birla Group and Religare Enterprises Ltd., controlled by the billionaire brothers Malvinder and Shivinder Singh, said they will apply for licenses. Ambani’s Reliance Capital Ltd. (RCAPT) also plans to apply for the permits, Chief Executive Officer Sam Ghosh said.
Srei Infrastructure Finance Ltd. (SREI) also plans to apply for a banking permit, Chairman and Managing Director Hemant Kanoria said in an interview. Setting up lending operations would help Srei “substantially” because of its rural operations, he said.
Mahindra & Mahindra Financial Services Ltd. (MMFS), a unit of India’s largest tractor maker, is keen to set up a bank, said Managing Director Ramesh Iyer.
“With the economy growing, rural India is emerging as the new frontier,” Ajit Mittal, a director at Indiabulls Group, said in a telephone interview. “Setting up branches there will be a good proposition for groups with requisite skill sets.”
India has 26 state-run banks, accounting for 76 percent of outstanding loans as of March 31, according to the central bank. The country’s 20 private lenders, led by ICICI Bank Ltd. (ICICIBC), held 19 percent of bank credit, while 40 foreign banks accounted for the rest.
Banks operating in India collectively have 49.6 trillion rupees ($915 billion) in outstanding loans as of Oct. 31, data compiled by the RBI shows. In an Oct. 30 statement, the Reserve Bank projected loan growth of 16 percent and deposit growth of 15 percent for the financial year ending March 31.
Bank loans, excluding advances made to state agencies for food procurement, expanded 16 percent in the year to Jan. 25, according to the RBI.
The RBI established guidelines that would open up the nation’s banking system to more private-sector firms in 1993 amid reforms that included liberalizing interest rates and setting standards for measuring non-performing loans. Based on those guidelines, the central bank granted licenses to 10 lenders, including ICICI, HDFC Bank Ltd. (HDFCB) and IndusInd Bank Ltd. (IIB)
It revised those rules in 2001 and gave permits to Kotak Mahindra Bank Ltd. (KMB) and Yes Bank Ltd. over the following three years. In August 2010, the RBI said it would issue new guidelines for licensing more banks and began seeking feedback from existing lenders and industry groups.
“The Indian banking industry can do with a little bit more competition,” Uday Kotak, managing director of Kotak Mahindra Bank, said in an interview last month. Regulators need to ensure that “some of the issues faced in other sectors, which have led to a perception of cronyism, do not get repeated when banking licenses are issued.”
The holding companies won’t be allowed to lend to firms owned by their founders under the new rules, which also don’t permit the banks to invest in any financial firms owned by their parent.
New banks will need to maintain a 13 percent capital adequacy ratio for three years, compared with the 10 percent mandated by the regulator when it set guidelines for new lenders in 2001.
“In India, there isn’t a lot of difference in the strategy and business model of banks because these are as per the guidelines of the regulator,” Shinjini Kumar, a director at PricewaterhouseCoopers, said in an interview to Bloomberg TV India. “The only differentiator is the corporate governance and credibility of the entity.”
To contact the reporters on this story: Anto Antony in Mumbai at aantony1@bloomberg.net; Bhuma Shrivastava in Mumbai at bshrivastav1@bloomberg.net
To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net
Companies with a 10-year track record and “sound credentials” can apply by July 1, the Reserve Bank of India said in a statement on Feb. 22. Foreign ownership will be capped at 49 percent for the first five years, and the lenders are required to set up one-in-four of their branches in villages with less than 10,000 people, according to the statement.
New banks may help Prime Minister Manmohan Singh, who resumed opening up the $1.8 trillion economy in September, to boost credit growth in rural areas as he seeks to revive a market expanding at the slowest pace in a decade. Only 35 percent of India’s adult population has accounts with lenders and other financial institutions, according to the World Bank, compared with the global average of 50 percent.
“Total banking licenses are likely to be limited,” Siddharth Teli, an analyst at Religare Capital Markets Ltd. in Mumbai, said in a note to clients yesterday. “Companies with strong non-financial promoters, a diversified shareholding and a niche retail presence in semi-urban areas have an edge.”
Birla’s Aditya Birla Group and Religare Enterprises Ltd., controlled by the billionaire brothers Malvinder and Shivinder Singh, said they will apply for licenses. Ambani’s Reliance Capital Ltd. (RCAPT) also plans to apply for the permits, Chief Executive Officer Sam Ghosh said.
Increasing Money-Flow
“The only purpose of the banking system is to increase the flow of money into the system,” Shachindra Nath, group chief executive officer at Religare, said in an interview with Bloomberg TV India last week. “It’s genuine for the government and RBI to expect that newcomers bring that in.”Srei Infrastructure Finance Ltd. (SREI) also plans to apply for a banking permit, Chairman and Managing Director Hemant Kanoria said in an interview. Setting up lending operations would help Srei “substantially” because of its rural operations, he said.
Mahindra & Mahindra Financial Services Ltd. (MMFS), a unit of India’s largest tractor maker, is keen to set up a bank, said Managing Director Ramesh Iyer.
“With the economy growing, rural India is emerging as the new frontier,” Ajit Mittal, a director at Indiabulls Group, said in a telephone interview. “Setting up branches there will be a good proposition for groups with requisite skill sets.”
Public Sector
State-run companies will also be allowed to set up banks, according to the rules. Still, the licenses are unlikely to be issued until late 2014 or early 2015, said A.S.V. Krishnan, a Mumbai-based analyst at Ambit Capital Pvt.India has 26 state-run banks, accounting for 76 percent of outstanding loans as of March 31, according to the central bank. The country’s 20 private lenders, led by ICICI Bank Ltd. (ICICIBC), held 19 percent of bank credit, while 40 foreign banks accounted for the rest.
Banks operating in India collectively have 49.6 trillion rupees ($915 billion) in outstanding loans as of Oct. 31, data compiled by the RBI shows. In an Oct. 30 statement, the Reserve Bank projected loan growth of 16 percent and deposit growth of 15 percent for the financial year ending March 31.
Bank loans, excluding advances made to state agencies for food procurement, expanded 16 percent in the year to Jan. 25, according to the RBI.
Market Opening
India’s economy will expand 5 percent in the year ending March 31, the least in a decade, government data shows. Singh in September eased rules for foreign direct investment in retail and airlines. He also raised fuel prices to reduce the government’s subsidy burden.The RBI established guidelines that would open up the nation’s banking system to more private-sector firms in 1993 amid reforms that included liberalizing interest rates and setting standards for measuring non-performing loans. Based on those guidelines, the central bank granted licenses to 10 lenders, including ICICI, HDFC Bank Ltd. (HDFCB) and IndusInd Bank Ltd. (IIB)
It revised those rules in 2001 and gave permits to Kotak Mahindra Bank Ltd. (KMB) and Yes Bank Ltd. over the following three years. In August 2010, the RBI said it would issue new guidelines for licensing more banks and began seeking feedback from existing lenders and industry groups.
“The Indian banking industry can do with a little bit more competition,” Uday Kotak, managing director of Kotak Mahindra Bank, said in an interview last month. Regulators need to ensure that “some of the issues faced in other sectors, which have led to a perception of cronyism, do not get repeated when banking licenses are issued.”
Going Public
Firms will have to set up a wholly owned, non-operative financial holding company and undergo a so-called fit and proper test to win permits. The holding company will own 40 percent of the bank, which will have to be reduced to 15 percent in 12 years, according to the statement. The lenders will have to sell shares within three years of starting operations.The holding companies won’t be allowed to lend to firms owned by their founders under the new rules, which also don’t permit the banks to invest in any financial firms owned by their parent.
New banks will need to maintain a 13 percent capital adequacy ratio for three years, compared with the 10 percent mandated by the regulator when it set guidelines for new lenders in 2001.
“In India, there isn’t a lot of difference in the strategy and business model of banks because these are as per the guidelines of the regulator,” Shinjini Kumar, a director at PricewaterhouseCoopers, said in an interview to Bloomberg TV India. “The only differentiator is the corporate governance and credibility of the entity.”
To contact the reporters on this story: Anto Antony in Mumbai at aantony1@bloomberg.net; Bhuma Shrivastava in Mumbai at bshrivastav1@bloomberg.net
To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net
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