The Reserve Bank (RBI) on Friday, released its final guidelines to issue banking licenses wherein entities both from private and public sector shall be eligible to set up a bank.
Ajay Srinivasan, CEO - Fin Services, Aditya Birla Group told CNBC-TV18 that his company will look at all the options to promote, start a bank. "It is early to comment on exact structures and how you will get this moving, but we will look at all the options and then take a call on what we think is in the best interest of everybody, " says Srinivasan.
Srinivasan also mentions that the company is working on asset allocation and may look to merge options in the longer-term.
Below is the verbatim transcript of Ajay Srinivasan's intterview on CNBC-TV18.
Q: The RBI has said only non-financial companies that are widely held and listed should hold the holding company. In your group have you identified which would be this promoter company?
A: For today, financial services at the Aditya Birla Group, a part of the Aditya Birla Nuvo which is a widely held company. The guidelines have only come out on Friday, so for any further details and structuring issues we will have to deal with as we get into greater detail and discuss internally.
Q: Will you convert your non-banking financial company (NBFC) into a bank or promote a bank and then divest the NBFC from various activities?
A: It is early to comment on exact structures and how you will get this moving, but we will look at all the options and then take a call that we think is in the best interest of everybody.
Q: Mergers and Acquisitions (M&A) in banking have been very few so far. Usually we have seen only bailouts. Do you foresee M&A activity post the issue of new licenses since there is a chance that some deep-pocketed guys could get licenses?
A: I do not see anything specific as a result of this, but there are economies of scale in financial services in general and therefore consolidation activities will be an ongoing process. I am not sure that this alone will necessarily kick off M&A.
Q: Will you look at M&As as an option?
A: We would look at all options as you would expect anybody to. I do not think that this specifically would lead to any of that.
Q: When Yes Bank and Kotak Bank came into existence, the PSU banks were pretty weak, they were barely coming out of a slowdown. Some of them had just been listed. Even the new private banks like UTI Bank at that time were small. Now many of the new private banks are giants. PSUs are savvier. Also, some of the new banks are offering 7 percent on savings account. Given all this, will making money be very difficult for the new banks?
A: The first issue is that the banking sector has developed considerably since the last set of new banks came in. It is much more competitive than it was at that stage, there is no taking away from that. However, you also have to look at the bigger opportunity and some of the thinking behind these guidelines which is around broadening the spread of banking, increasing the reach of banking and in that context we still find 35-40 percent of Indians have a bank account. So, if I look at it from a broader opportunity perspective, there is still a long way to bank Indians as compared to where we are today. While competition has increased, I would still think the opportunity is large.
Q: Would 25 percent branches in unbanked areas is going to be burdensome? The incumbents so far only have 25 percent of their incremental branches in unbanked areas.
A: This is in line with the RBI's thinking and the focus that they want from this round of new bank licenses. Anybody who is looking for applying at this stage will have to find a way to make this work for them, because it is a reality.
Q: Do you think that some groups like yours who have a Telecom License can find better synergies like providing the backbone for business correspondence, mobile banking?
A: It is a little early to talk about our license application per se, but if we look at financial inclusion, technology will play a big role. It will require a different technology to make financial inclusion work differently and to make it work profitably. So, we will have to look at different elements including using the telecom network that is available, the correspondence that are available. The key point is that technology will be important in making inclusion work and making it viable.
Q: When do think the licenses will be finally handed to the chosen ones, this calendar year or FY14?
A: It is difficult to say. Last time, the process took about a year from the time applications went in. So, I cannot comment on how much time it will take this time around.