NBFCs hope tough regulations will bring them into banking

The Reserve Bank of India's (RBI's) decision to stay away from taking an immediate call on corporate entry into banking, and letting large non-bank financial companies (NBFC) convert into banks may have disappointed some, but it was not entirely unexpected.

- SUBRATA PANDA & ANUP ROY

Rather, some of the large NBFCs are hoping that the scale-based regulation on NBFCs, which brings large para-banking units at par with banks gradually, would be the first step towards letting them graduate into full-scale commercial banks.

In its own guidelines and corporate structure for private banks, released on Friday, the RBI kept silent on two critical recommendations of an internal working group headed by PK Mohanty, director, central board of the RBI.

The central bank accepted 21 of the 33 recommendations of the working group, the most important being allowing promoters to hold a 26 per cent stake in the bank they floated. The RBI did not mention the corporate and NBFC issues in its guidelines.

“Since the RBI has largely remained silent on these two recommendations, we interpret it as a reluctance of the regulator to issue bank licenses in a liberal way, wrote Macquarie analysts Suresh Ganapathy and Param Subramanian in a note, adding that they expected the RBI to continue exercise caution on granting bank licences.