A government-owned co-operative bank, a non-banking finance company (NBFC) backed by an internet entrepreneur, a veteran foreign banker and a company engaged in remittance services are among those who have sent in their applications to the Reserve Bank of India for "on-tap" universal bank licences.
Two names that stand out in the mix are internet billionaire Sachin Bansal and former Citi banker Pankaj Vaish. Bansal’s Chaitanya Fin Credit has been trying for a full-services banking permit for a while. If it gets the nod, Chaitanya will be only the second Indian microlender morphing into a bank. The other is Chandra Shekhar Ghosh's Bandhan Bank, which got the go-ahead in 2013-2014.
Who are they
Chaitanya has been growing slowly but steadily in the microfinance space. It has a good structure and team in place. According to the FY20 annual report of the company, the loan book grew by 54 percent from Rs 571 crore to Rs 880 crore, while profit after tax (PAT) increased by 20 percent from Rs 4.2 crore to Rs 5.3 crore. Non-performing assets (NPAs) were at a satisfactory level of 0.8 percent of the book.
The RBI wouldn't mind converting large microfinance institutes (MFIs) into banks as regulation becomes easier. MFIs are in a unique position to tap the bottom of the pyramid, where big banks struggle. MFI-turned banks can be a good model in the microcredit space—Bandhan has successfully done that in its initial five years. Chaitanya will be a strong contender this time, given its experience in direct lending and backing of a strong promoter.
Similarly, Pankaj Vaish is a name to be watched closely. He is a veteran of the banking business, both in India and abroad. Vaish was Citi’s head of markets in India, Bangladesh and Sri Lanka, with responsibilities for the fixed income, currencies, credit, commodities and equities businesses.
He has long years of experience in international banking, capital markets and can be a good bet in the eyes of the regulator to lead a bank. Hence, he is another probable candidate in this round. Vaish is seeking a banking permit at a time when his former employer Citi is exiting consumer business worldwide, citing a lack of scale and profitability.
To me, the Repatriates Cooperative Finance and Development Bank Limited (REPCO Bank) is a surprise entry. It may have a game plan that we don't know about yet. What we know is that REPCO Bank is a Tamil Nadu-headquartered cooperative bank, controlled by the government of India along with those of Tamil Nadu, Kerala, Karnataka, Andhra Pradesh, Telangana and also some individuals.
Governments hold a 55.3 percent stake in the bank that had deposits of Rs 8,197 crore as of March 2020 and a loan book of Rs 7,005 crore. But the lender has seen a sharp rise in its gross NPAs to 9.18 percent in 2019-20 from 6.34 percent in the previous fiscal.
The GNPA spiked from 3.42 percent in 2015-16 to 9.18 percent in 2019-20. The RBI has indicated in the past its willingness to convert some of the large cooperative banks to commercial banks for the ease of regulation but will it be comfortable with such NPAs?
The last one, UAE Exchange and Financial Services Ltd has applied for banking services in the past too. It is the only company with that business background on the list. Will it get lucky this time?
Going by experience, the RBI has preferred applicants with a strong background in direct lending operations. This time, too, it will be a critical factor. A committee set up by the banking regulator under the leadership of former RBI deputy governor Shyamala Gopinath will evaluate the candidates. The RBI brass will take a final call based on its recommendation.
Missing in action
While the names seeking a banking licence are interesting, equally interesting is the fact that no major corporation is in the running. In 2013, there were 26 applicants --only two made the cut. The initial list included Tatas, Aditya Birla, Reliance Capital and Bajaj Finserv.
None of the big industrial houses have shown interest this time, which is a surprise as an RBI working group had advocated allowing corporate houses to enter banking. The report triggered a lively debate on the perils and merits of letting businesses own banks.
It is hard to predict who will make the cut. The RBI has been quite conservative in giving banking permits. Since the nationalisation of 14 banks in 1969 and another six in the second round in 1980, the RBI gave the first round of private bank licences to 10 players in 1993-94—Global Trust Bank Ltd, ICICI Bank Ltd, HDFC Bank Ltd, UTI Bank Ltd (renamed Axis Bank Ltd), Bank of Punjab, IndusInd Bank Ltd, Centurion Bank Ltd, IDBI Bank Ltd, Times Bank and Development Credit Bank Ltd.
Kotak Mahindra Bank Ltd and Yes Bank Ltd were given the licence in 2003-04. Ten years later, IDFC and Bandhan got the nod. Of these, many banks do not exist anymore, while a few got merged with bigger banks. In 1995, the Develop Cooperative Bank was converted to Development Credit Bank (DCB Bank).
The general expectation is that the RBI will give preference to those with a strong record of handling credit operations, deep pockets, a clean track record and the might to withstand tough times. If that is the case, the probable candidates narrow down to one or two. There is no point speculating the likely winners—we will get to know them soon.
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