Mahindra Fin not keen on banking licence, shares tank 9%

Moneycontrol Bureau

Mahindra Financial Services shares extended its losses after the company management hinted at not applying for a new banking licence. The stock tanked nearly 9 percent on Monday to close the day's trading at around Rs 236 on the NSE.

The non-banking finance arm of the Mahindra & Mahindra group was seen as a strong contender for the new private sector banking licence for which, the Reserve Bank of India (RBI) has already issued the guidelines. The last date for application is July 01, 2013. RBI is believed to be issuing 3-7 licences.

"The RBI guidelines provide for the conversion of NBFCs into a bank, but do not provide any flexibility for a NBFC and a bank to co-exist for a reasonable period of time. The regulations provide that cash reserve ratio and statutory liquidity ratio will be applicable from inception, even though building of CASA will take some time for a newly converted bank," the NBFC said in a statement sent to the BSE.

This anomaly, according to the company, will impose an undue penalty on large, successful asset finance NBFCs with a pan-India network, that wish to convert into a bank, as compared to small NBFCs with a limited network.

"The current set of guidelines, as clarified, has an adverse economic and operational impact on the business of larger NBFCs. A time bound co-existence of a NBFC and a bank in the same group would help set up a sustainable model and address the concerns of all stake holders, including the customer base both current and future," it said.

It is learnt that many investors were building position on Mahindra Finance shares hoping that it would get the green nod from the RBI to start a bank. Mahindra Finance, according to market sources, held good possibilities to get a licence as the central bank is expected to give priority to brand.

However, the company management may revise its decision if the existing guidelines are amended. The company sent a notice to the BSE in this regard.

"Should the guidelines be amended, to permit co-existence of NBFC and a Bank in the same group, or should these concerns be addressed in any other manner, the company will be happy to apply for a Banking License," it said.