The system needs to be strengthened before companies can issue banking licenses

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Mumbai, Ta. 24 November 2020, Tuesday

The Reserve Bank's Internal Working Group (RBG) has recommended the conversion of Non-Banking Finance Companies (NBFCs) into banks and the issuance of banking licenses to corporate groups. Someone who is fit to be is part of a corporate group.

The working group has recommended that bank licenses should be provided to NBFCs with assets of over Rs 50,000 crore.

Looking at the country's top ten finance companies in terms of assets under management, it seems that Aditya Birla Capital, Tata Capital, Mahindra Finance, Bajaj Finance, Piramal and L&T Finance are part of a corporate group. In addition, LIC Housing Finance is a part of LIC.

The Banking Act will have to be amended before allowing a corporate group to start a bank. This is because the Reserve Bank will need more powers to oversee, sources said.

Although it would not be a big deal for NBFCs to start a bank, they would have to spend heavily on technology and set up a branch network before converting to banks. In addition, according to the Reserve Bank's norm, they will have to maintain an SLR of 12 per cent and a CRR of 5 per cent, which may not be possible for every NBFC.

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