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Banking Licenses in India - Inviting them all

It is well known by now that 26 applications (complete list given below and categorized according to my own whims) were received by the Reserve Bank of India last week for the fresh round of banking licenses which are expected to be issued in the near future. The list is fairly diverse, ranging from NBFC arms of business conglomerates to large brokerage houses, and from ambitious smaller financial services firms to large players in the financial services industry.

Much has been written about this process in Indian as well as global publications (Economic Times, Business Today, Business Standard, Hindu Business Line, Livemint, Wall Street Journal, Reuters), raising several debates ranging from credibility of corporate houses to sustain banking operations, reasons for fewer applicants when compared to earlier rounds in 1993 and 2003; whether banking is indeed a profitable business anymore given the extensive rural banking norms being put in place by the RBI and adverse economic environment; if new bank licenses can take India further down the path of increased financial inclusion thus reducing the unbanked population; restrictions on financial holding companies, existing NBFC and their current mandates.

Applicants from Diverse Business Houses

  v  Tata Sons
  v  Aditya Birla Nuvo
  v  Reliance Capital
  v  Bajaj Finserv
  v  L&T Finance Holdings
  v  Value Industries (Videocon subsidiary)
  v  Indiabulls Housing Finance

Other Private Sector Financial Services Companies (Medium-Large)

  v  JM Financial
  v  Religare Enterprises
  v  SREI Infrastructure Finance
  v  Magma Fincorp
  v  India Infoline
  v  Edelweiss Financial Services
  v  Muthoot Finance
  v  Shriram Capital

Financial Services Companies (Small)

  v  INMACS Management Services
  v  UAE Exchange and Financial Services
  v  Suryamani Financing Company
  v  Smart Global Ventures

Government Owned Agencies and Organisations

  v  LIC Housing Finance
  v  Department of Posts
  v  Tourism Finance Corporation of India
  v  IFCI
  v  IDFC

Grassroots Development Organizations/ Microfinance Institutions

  v  Bandhan Financial Services
  v  Janalakshmi Financial Services

From the given list, here’s a short SWOT analysis on 3 applicants: Bandhan, Janalakshmi, and India Post due to their relatively large rural base in their regions of operations. Since the focus of RBI’s intentions since the inception of this discussion has been on rural banking, these three players can potentially play a crucial role to further the cause of banking in rural India.

Bandhan Financial Services Pvt. Ltd. (NBFC MFI)
Based out of: Kolkata
Strengths:         Strong existing rural base in Eastern, Northern and Central India; social focus of organization has been retained despite rapid growth in their portfolio even during troubled times for the microfinance sector in the country; healthy balance sheet
Weaknesses:    Fewer years of operational experience when compared to other applicants
Opportunities:  As they have outshone most of their MFI peers in the past few years, the time may be ripe for them to take the plunge into full fledged banking operations
Threats:           Can their initiatives be scaled up and replicated without losing impact?

India Post (Department of Posts, Government of India)
Based out of: Everywhere in India
Strengths:         Mind-boggling network in the most rural regions; have provided deposit services in recent times
Weaknesses:    Lack of technological development and innovation, bureaucratic decision making process, training of postal department staff needs to be in sync with the generation
Opportunities:   If they can improve on their corporate governance, archaic delivery channels and appropriate training at the front and back-ends, they can potentially provide the much needed impetus in rural areas; existing trust within rural network
Threats:            Critics say that they haven’t quite done their job of being a good postal department, so do they deserve to be rewarded with a banking license,

Janalakshmi Financial Services Pvt. Ltd. (NBFC and Section 25 MFI)
Based out of: Bengaluru
Strengths:         Will be in a good position to meet priority sector lending norms, excellent group of investors for the organization; successful recent capital infusion
Weaknesses:    Loan Portfolio smaller than large MFI peers
Opportunities:  Use their base in Southern India to reach unbanked areas
Threats:            Need to scale up their NBFC operations to become a banking entity both geographically as well as at the product level


  1. good article ...but I feel that MFIs should not seek bank licenses as then they will be subject to high establishment costs and statutory requirements which may prevent them from lending to their core clients ..there was interesting paper on the cost of delivering rural credit by IFMR trust though some of the assumptions made to arrive at the costs seemed contentious....for India Posts the negatives outweigh the positives doubt the infrastructure matters but banking is at the end of the day a service industry so the value offered to the customer is more important

  2. Thank you for your comments. Many private sector banks haven't done a very good in expanding their rural reach, which is one of the primary reasons RBI is undergoing this exercise once again to see whether bringing in new players may contribute positively to financial inclusion. This is where MFIs may play a part. Some MFIs can probably handle the establishment costs, which can be outweighed by the potential benefits from the increased scale of operations.

    I agree with you on India Post's inability to take a venture of this scale forward successfully.

  3. Abhay,

    You are entitled to your optimism and your opinion regarding some MFIs and most pvt sector banks is correct. However the costs and requirements are real and mandatory whereas the gains are expected and speculative. I have strong doubts whether any of the MFIs will have the financial strength which is required to sustain banking operations, especially in the highly competitive urban market. They have to gain a foot hold there if want to access low cost deposits. We have already seen how sanctions in one state have badly affected the growth of the micro-finance industry, and most MFIs are regional players. I think the MFIs have huge potential for growth if they can stick to their core clients and improve their services. One hopes that RBI comes up with more prudent norms for regulating the MFI sector, and allows various types of financial institutions to expand to serve diverse needs of customers.

  4. Obviously I want to appreciate your work on posting this information. Table you have posted in this article helps to know all Infrastructure Banking systems.


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