Banking law amendment bill will be presented in the current session of parliament, and there are likely chances for it to be passed. The passage of bill will pave the way for RBI to issue much awaited new bank licenses. RBI has been very selective in issuing new banking licenses, evident from the fact that it issued 12 new bank licenses in the last two decades. The guidelines do not specify the number of licenses but given the past record and the RBI's cautious approach, we believe a maximum of three or four licenses would be granted. However, considering that RBI would issue only a handful of licenses and given that there are a large number of hopefuls, the competition for new banking licenses would be very intense. Click on the next slide to find out broking firm Antique’s top six contenders for banking license...their strengths and weaknesses.
Shriram Group Strengths: Shriram Group's whole business model mainly caters to financially secluded bottom of the pyramid consumer segment. It has over 1,200 branches in rural areas through its companies. Weakness: Shriram Group comprises multiple entities of which, only two are listed (STFC & SCUF), hence the structure is complicated and it could be difficult to club all the business in non-operating holding company (NOHC) as per RBI requirement.
L&T Finance Strengths: L&T Finance is professionally managed group with diversified holdings and no promoters. Its holding structure is closely aligned with the current RBI's proposal of non-operating holding company structure. Weakness: It has a very small branch network (around 110 branches) compared to other contenders who have a network of over 500 branches. Less than one-third of its book is rural-focused, and hence does not score very high on financial inclusion.
M&M Financial Services Strengths: M&M Financial Services has created a geographical niche in catering to rural areas. Over 50% of loan book of MMFS is categorised as priority sector. Weakness: MMFS' lending to customer of promoter group company Mahindra & Mahindra forms 50% of the loan book. Lending to promoter group companies or customers of promoter group has been one RBI's biggest concerns.
Bajaj Finserv Strengths: Bajaj Finserv has a well-diversified range of financial services. At the group level, it has an existing customer base of 15 million+ and presence in over 1,000+ locations through its subsidiaries. Weakness: Bajaj has been focusing on the affluent customers segment, and scores low on financial inclusion. It has has almost 25% of its book focused toward financing purchase of products of other group companies.
Aditya Birla Nuvo Strengths: Aditya Birla Nuvo, one of the oldest business houses, ABNL has a well-diversified range of financial services products. It has a nationwide presence with over 1,500 touch points and over 2lacs insurance agents. Weakness: ABNL has concentrated shareholding and promoters own 51% of the company. Non-financial services contribute approximately two-third of total ABNL's business.
Tata Capital Strengths: Tata Capital is a household name and is the most trusted brand in the country. The group through its various companies has presence in several industries with consumer base of over 150 million. Weakness: Tata Capital is a 100% subsidiary of Tata Sons. It has multiple entities in the financial services business, which makes the NOHC structure complicated.