MC EXCLUSIVE Govt nudging big NBFCs to seek banking licence amid need for more banks

NBFCs should aspire to become banks

The government is nudging large Non-Banking Financial Companies (NBFCs) to seek banking licences and transform into full-fledged banks to meet the country’s growing financial intermediation needs, a senior government source said.

“We need systematically bigger banks. NBFCs should aspire to become banks — and they are one of the two primary channels for increasing the number of banks in the country, along with Small Finance Banks (SFBs),” the official told Moneycontrol. “Whether we agree or not, the fact remains that India requires more banks, and these are the only viable paths,” he said.

As part of the broader Viksit Bharat 2047 vision, the government is also pushing for the emergence of large Indian banks that can compete on the global stage. The source said the Centre envisions at least two Indian banks among the world’s top 10 by asset size.

“We can’t be a big country without big banks,” he said. “By 2047, we should have a couple of banks in the global top 10.”

Dual strategy

The Centre’s strategy includes both scaling up existing large banks and enabling the transition of NBFCs and SFBs into commercial banks. Sources say this twin-track approach is key to enhancing risk-bearing capacity and expanding reach — particularly in rural and semi-urban regions, where NBFCs often serve as primary lenders.

“There are just three or four large banks right now. That has to change. The risk-taking ability will lie with large banks, but we also need a greater number of banks overall,” the source said.

Diversified ownership

The government has communicated that NBFCs with diversified shareholdings should seriously evaluate becoming banks.

“Systemically important NBFCs should look at this transition. They are part of the solution,” the source said.

Under the current guidelines, corporates cannot hold more than 26 percent in a banking entity. While some have pushed for a review of this cap, the government believes adequate flexibility exists under the present rules.

“Even if shareholding exceeds 26 percent, effective ownership can still be structured and capped. It can be managed within the current guidelines,” the source said.

NBFCs’ role in last-mile credit
NBFCs are seen as essential to last-mile credit delivery due to their agility, local presence, and efficient customer interface.

“In many rural areas, NBFCs are the only accessible lenders. They know the borrower and their appraisal systems are efficient, and the money reaches the customer quickly,” he added.

“NBFCs are extremely important for our financial system. Banks should learn from them,” the source said.