NORMS HURDLE Mahindra Fin opts out of banking licence race

Chennai: Mahindra Finance, the Mahindra group's nonbanking finance company (NBFC), has decided not to file for a banking licence.
    The current set of guidelines, particularly the latest RBI clarification, make the rules "disadvantageous for large, successful NBFCs" and the company will apply for a licence only if the rules are amended, Mahindra Finance said in a statement on Monday.
    The bone of the contention is the guideline that states that right from inception an NBFC that converts to a bank will attract CRR and SLR. For an NBFC like Mahindra Finance, which has an asset base of around Rs 30,000 crore, it would attract CRR and SLR of around "Rs 8,000-9,000 crore", said a source with the knowledge of the matter.
    For smaller NBFCs the burden is necessarily much less. "An NBFC with Rs 2,000 crore asset base, for instance, will need to pay only around Rs 600 crore so the rules are biased against bigger NBFCs," the source said.
    The issue of RBI guidelines – which allow the conversion of NBFCs into a bank but do not provide any flexibility for a NBFC and a bank to coexist for a reasonable period of time – has already caused some NBFCs to ask for conditional licences or not apply at all. The guidelines say that CRR and SLR will be applicable right from inception even though the building of CASA will take some time for a
newly converted bank. Sources say that the board of Mahindra Finance has decided that its NBFC model is successful enough to continue as it is without converting into a bank unless the regulations change.
    The last date for applying for abanking licence is July 1, 2013. Some of the top names in the fray include L&T Finance, India Infoline, Religare, Aditya Birla Group, Tata Capital and Edelweiss while others like Shriram Capital is seeking exemption to keep its truck finance company as a separate unit. NBFCs say it is unfair that existing banks are allowed subsidiary NBFCs but new banks are not permitted, the only exception being insurance and credit card NBFCs. "Asset finance NBFCs are not allowed," said the source.
    According to the RBI clarification, after getting the licence, players will have 18 months to start a bank. The Mahindra Finance board has "therefore decided not to apply for a bank license under the current set of guidelines read with clarifications and to intimate RBI accordingly along with the reasons for its decision. Should the guidelines be amended, to permit coexistence of NBFC and a bank in the same group, or should these concerns be addressed in any other manner, the company will be happy to apply for a banking license," the company statement said.
    Mahindra Finance isn't the only player that has decided not to bid for a banking licence. One of the oldest NBFCs in the market, Sundaram Finance, too, isn't applying for a banking licenc