RBI clarifications are on expected lines: Indiabulls
The original Reserve Bank of India guidelines were fairly lucid, and everything was well articulated, says Ajit Mittal, Group ED, Indiabulls Group. Talking to CNBC-TV18, he says that RBI has now clarified that the transition time is 18 months.
June 03, 2013 / 18:48 IST
The only new thing which I find in the clarifications about banking licences is that RBI has given the transition time – the period between the in-principle approval and its conversion to commercial licence has been raised to 18 months, says Ajit Mittal, Group ED, Indiabulls Group. He said this has primarily been done to enable companies to have that kind of corporate structure which is compliant with the non-operating financial holdings kind of company.
Here is the edited transcript of his interview with CNBC-TV18 Q: I guess 18 months comes as a relief?A: These clarifications are more or less on the expected lines. In the first place, the original Reserve Bank of India (RBI) guidelines were fairly lucid, and everything was well articulated. The only thing they have done is they have embellished some of the points. They have elaborated on few things and the only new thing which I find is they have given the transition time – the period between the in-principle approval and its conversion to commercial licence has been raised to 18 months which has primarily been done to enable companies to have that kind of corporate structure which is compliant with the non-operating financial holdings (NOFHC) kind of company. The idea is for RBI to ensure that you don’t have any dominant shareholding structure, it should have a well-diversified shareholding structure and also it should be consistent with the Shyamala Gopinath committee's guidelines with regards to banks being held by the NOFHC's.Q: They have also said that when you look at those promoter holding companies, which may not have 51 percent public shareholding and therefore will be considered in the promoter, in the 49 percent and not in the 51 percent of public shareholding. You can have privately held companies. They need not all be listed or publicly held companies - is that a major relief?A: It is just a question of interpretation. I always thought that way. There is nothing new. Reserve Bank of India (RBI) never insisted that it has to be publicly listed as long as it is held to the extent of 51 percent by a diverse body of shareholders, it is fine. So, it never was the case that it has to be publicly listed as long as 51 percent of the shareholding is held by a diverse group of shareholders and that still stands.Q: The other condition which I think groups like yours and all non-banking financial companies (NBFCs) were seriously worried is to transfer all the financial services business which are departmentally to be done by a bank to the bank. Now what I read and this is purely in the form of headlines, I have not read the exact text, it says NBFCs must transfer all the financial services business to the new company. If this is the case you will have huge demerger and merger costs?A: Even this thing was fairly well known. You can't have your cake and eat it too. So, RBI would never allow people to run NBFCs and also then have a bank. If you look at the preamble of the original guidelines whatever business banks can do there is a fair amount of overlap in what NBFCs or housing finance companies today are doing and what banks are doing. 20 years ago it was anathema for a bank to give a housing loan or a car loan. Today, banks are shouting from the rooftops to offer the same products which housing finance companies or the NBFCs are offering. It is not at all a shock for us. We always knew that you have to convert. For NBFCs or for housing finance companies the road ahead is to convert into a bank.Q: Did you all want some kind of time forbearance because if existing non banking financial companies (NBFCs) – take a Shriram, Indiabulls - if you all transferred your activities to this kind of a company it is possible that you will have a very skewed liability asset book, for instance a Shriram will have only one retail kind of assets or for that matter any company you take any of the NBFCs their very characteristic has been niche area of operation. So, I don’t see so far any mention of the Reserve Bank of giving any forbearance in terms of time to allow this kind of a transfer of assets. Are you expecting some forbearance of some kind?A: We don’t necessarily need any forbearance. Idea is that if you are going to convert into a bank then you necessarily have to have that kind of asset-liability profile, which is compatible with that of a bank.Going forward things would become a little more clear, but certainly with the kind of products that banks have are much varied than that of the NBFCs. So, NBFCs obviously operate in a niche area, a couple of names that you gave.Obviously, they have leadership position in their respective product domains, but once you become bank then you have to fall in line, whatever is consistent with the banking activity you have to follow. So, I don’t see that as a dampener and I don’t see that as impossibility, this is fairly achievable goal.Q: I just had a quick question with regard to the restructuring that Indiabulls might have to undertake. The last time when we spoke to you all on your Q4 numbers the company did mentioned that you all have already pretty much prepared yourselves in terms of a structure already to apply for a banking licence. Post these clarifications would you assume that there would be any sort of restructuring, which you all would need to undertake before you all can reapply or apply?A: Surely, there would have to be restructuring and not only for Indiabulls, I guess for almost all the applicants the restructuring would be the order of the day. But having said that the restructuring would not happen before in-principle approval stage – that’s why RBI has thought through it and they have allowed one and half year, idea is whatever corporate action, whatever scheme of arrangement process or sale of the underlying assets to a new company – all that can be accomplished in a reasonable timeframe. So all that will commence once an applicant is assured of a in-principle approval. You just can’t start dismantling the whole existing structure and go towards a new structure before you even get an in-principle approval. So, RBI is going to allow us one and half year to achieve that. Only then you can commence your commercial operation, which is I guess a very reasonable kind of dispensation. Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
