New bank licence norm may turn out to be tricky for L&T

While many analyst and industry experts believe that L&T Finance fits the criteria for getting new bank license, clarification issued by Reserve Bank of India may put the company and its holding company Larsen & Toubro in a soup.

In the page 88 of the central bank’s 165-page clarification RBI has said that Larsen & Toubro perhaps holds 75-80 percent in L&T Finance. So, the question is if such a company were to hold the non operating financial holding company would it not qualify as being widely held by the public?
The NBFC is owned by 80 percent by L&T and L&T itself is a widely held company, there is no identifiable promoter. So, effectively L&T Finance does not have to get another entity to get the public share holding character of the owner or of the holding company. However, the RBI clarification says that in case of the non operative holding company, the owner should have voting rights in such a manner that 51 percent is with widely held companies.
This gives the impression that L&T will have to apply for the banking license and not L&T Finance. It is early days yet but we will have to see how this group of companies react to the news.