Banking space- few hopes dashed, few altered: Emkay

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Banking space- few hopes dashed, few altered: Emkay

Emkay Global Financial Services has come out with its report on banking space.

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Emkay Global Financial Services has come out with its report on banking space.

Dreams of few business groups may be dashed: According to draft guidelines, entities/groups that have significant (10% or more) income or assets or both from/ in activities, such as real estate construction, capital markets and broking activities taken together in the last three years, shall not be eligible to promote banks. This effectively dashes off hopes of Religare Enterprises, Indiabulls Group, IIFL. Moreover Promoters / promoter groups apart from having diversified ownership, sound credentials and integrity, need to have a successful track record for at least 10 years in running their businesses to be eligible for banking license.

PFC , REC , LICHF , SREI or MMFS may require corporate restructuring: Under the draft guidelines, a new bank can be floated only under non-operating holding NBFC (NOHC). Other NBFCs of the group will become the subsidiaries of the NOHC. Also NOHC will not be allowed to hold subsidiaries which are doing businesses which can be done departmentally within the bank. Thus, these NBFCs will have to be eventually merged with the bank in case they wish to float a bank or convert itself into a bank. However, in such scenario, PFC and REC would actually have to follow NOHC model recommended by RBI for PSU banks.
 
The ball thrown back into government's court: Though the draft guidelines have been issued today, the finalization of same and issue of new licenses may remain prolonged procedure as the amendment to the banking regulation act is a pre-condition for issuing new licenses.

Initial paid up cap at Rs5bn with promoters stake at 40% - ensures deep pockets participate but shouldn't be an issue: As against the current requirement of Rs3bn of initial paid up capital, the draft guidelines raised the initial capital requirement to Rs5bn with NOHC holding 40% (though paper says nothing about capital structure of NOHC). This structure is to be followed for five year, thereafter excess of 40% need to be brought down to 20% within 10 years and to 15% within 12 years. We believe that initial investment of Rs2bn and probable investments of upto Rs6-7bn by NOHC shouldn't be a big issue.

FIIs holding more than 30% in Indian cos

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To read the full report click on the attachment