Here's why Shriram group may stay away from banking biz
Chennai-based Shriram group, one of the top contenders for a new banking licence, the parent company of Shriram Transport Finance might stay away from entering into banking business due to RBI's rural branch compulsion. However, it will take its final decision by the third week of June.
June 04, 2013 / 12:05 IST
Saikat Das
moneycontrol.com
Chennai-based Shriram group, the parent company of Shriram Transport Finance - the largest financier for small-time truck operators, may stay away from entering into the banking business due to stringent Reserve Bank of India (RBI) guidelines. However, it will take its final decision by the third week of June this year.Also read: RBI clarifies on new banking licence, revises validity timeThe RBI on Monday clarified more than 400 queries it had received on the subject of new bank licences. However, the central bank did not show any relaxation of mandate of setting up 25 percent branches in tier 3 - 6 cities."We will take the final decision by June 22. Certain clauses are discouraging," G S Sundararajan, group director, Shriram Group told moneycontrol.com."As per guidelines, a bank will have to set up 25 percent of their branches in tier 3 - 6 cities in the first year of operation. Even though there is an option of converting existing NBFC branches, it is very difficult. For the entire banking industry, the average is just at 8 percent in those cities. We have only 1 percent of NBFC branches there. If we don’t find it viable, we will continue as an NBFC only."Shriram group was seen as one of the top candidates for opting for a banking licence. Shriram Transport Finance shares spiked nearly 59 percent as against 23 percent rise in Nifty - the broader index, in the last one year.Shriram group has been internally discussing its proposed foray into banking. It has also taken advice from a couple of big consultants."The mandate to have 25 percent branches in rural area is not a compulsion for us. Rather, it is our business plan. If we do proceed with banking and are granted licences, we will pick up some of the best features of those two models and try and create a bank along those lines," Arun Duggal, chairman Shriram Capital had said earlier in exclusive interview.Also read: Our focus will remain on small clients: Shriram CapThe time limit within which an entity has to comply with guidelines has actually created a stumbling block, observed industry experts. Moreover, the compulsion of maintaining cash reserve ratio (CRR) and statutory liquidity ratio (SLR) may not be an easy task for any NBFC within stipulated timeline."As an NBFC we do not have the compulsion of maintaining CRR and SLR currently. Ours is a very complex organisation. We have to see whether the business model fits into it. We have been doing the business of financial inclusion much before the government started focusing it," Sundararajan said.saikat.das@network18online.com
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