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
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
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
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
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 ..no 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
ReplyDeleteThank 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.
ReplyDeleteI agree with you on India Post's inability to take a venture of this scale forward successfully.
Abhay,
ReplyDeleteYou 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.
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.
ReplyDelete