RBI sends bank licence applicant list to EC; IDFC, L&T Finance, LIC Housing top contenders

Infrastructure Development Finance Co, L&T Finance Holdings and LIC Housing Finance could be in the running for new banking licences along with Reliance Capital, JM Financial and even India Post. That's according to a list of applicants' names that qualify for licences which has been sent to the Election Commission by the Reserve Bank of India.

IDFC, L&T Finance, LIC Housing Finance and India Post are among the top-ranked contenders for a licence, according to the report. Although neither the central bank nor the Bimal Jalan committee, which appraised the applications, have spelled out their preferences, this is being interpreted to mean that they are the frontrunners.

"The committee has not eliminated any applicants, nor has it given any preference," said an official aware of developments. "However, it has ranked the applicants based on their compliance to the guidelines. This has been presented to the Election Commission. The final decision will be that of the Reserve Bank of India governor Raghuram Rajan." Corporates and broking firms have not been eliminated from the list but have been ranked lower, the person said.

RBI sends bank licence applicant list to EC; IDFC, L&T Finance, LIC Housing top contenders"Entities like JM Financial, Edelweiss Financial Services, Reliance Capital have been ranked below the microfinance companies like Janalakshmi Financial Services and Bandhan Financial Services," said the official. One of the aims of the exercise is financial inclusion or widening access to the banking system, especially in rural areas.

Based on an analysis of eligibility prepared by the Jalan committee, the non-deletion of any applicant has caused surprise, especially in the light of reports that entities under any sort of cloud didn't stand much of a chance in the selection process. To be sure, this analysis doesn't necessarily reflect which applicant will eventually get a licence.

Amid the heat generated by the election campaign, the award of new banking licences has taken on an intriguingly political colour. Not surprisingly, Reserve Bank of India governor Rajan wants everything done by the book, that is, make sure that any action taken is in accordance with the model code of conduct currently in place. Hence the referral of the issue to the Election Commission. This may mean that the process gets delayed until after the polls.

"It has become a hot potato and nobody wants to take a decision on it. The process of granting licence seems to be delayed. We could see some action post elections," said Shinjini Kumar, leader, banking and capital markets, PwC India.

The committee said that Aditya Birla Nuvo could move up the rankings if there was a satisfactory closure to the controversial naming of group chief Kumar Mangalam Birla in a case involving the allocation of a coal mine to Hindalco, a unit of the business house.

The central bank has written to the commission asking whether the issue of new bank licences will violate the code of conduct ahead of the April-May election. Media reports suggest that the Election Commission could ask RBI to wait until the election process is complete. The RBI governor has clarified that he has not received any communication from the poll panel so far.

"Even after the Bimal Jalan committee submitted its report, the executive committee of deputy governors was wary of making any announcement," said another official aware of developments.

One suggestion that came up for discussion at the executive committee meeting was awarding licences to public sector entities to begin with as a way of avoiding controversy and litigation in an election year, the person said. The recommendations of the Jalan committee regarding IDFC and India Post were also discussed.

Since the RBI proposes to eventually start giving licences on tap, rather than seeking applications intermittently, the committee also discussed whether the applications by non-state entities could be considered in a second round. No decision was arrived at during the meeting. Jalan could not be reached for comment. The RBI spokesperson didn't respond to queries.

The process for awarding new bank licences began in February 2011 when the then finance minister Pranab Mukherjee announced it in his budget for FY11. It was speeded up last July when 26 companies applied for licences. The Tata Group withdrew from the race, implying that the central bank's conditions were restrictive and conforming with them would affect its other businesses besides having to ensure that more than 1,000 group units were compliant with requirements.

The finance arm of another big industrial group, Mahindra & Mahindra, dropped its plans to apply for a licence even before the application deadline.


Source: Economic Times