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June 27, 2013
Private sector companies that are in the fray for banking licences seems to be holding off till the last moment to apply.
Companies such as Reliance Capital, IDFC and L&T Finance are yet to send in applications to the Reserve Bank of India (RBI), for which the deadline is July 1. Only a couple of companies have applied for licences so far.

On Monday, Mahindra Finance announced it would not apply for a bank licence.

“We may not see many takers as was anticipated earlier as many feel that the RBI guidelines are too stringent,” said an official source who did not wish to be identified. “But considering the past experience where there have been instances of banks failing, the guidelines are sound and apt, as they will be dealing with people money.” '

Several other economies including Singapore, Korea, Indonesia, China and Malaysia among others do not allow industrial houses to foray into banking. However, many allow para-banking outfits, much like non-banking financial companies in India.

Rules are equally stringent in the US, Japan and Canada, which allow private sector to enter banking. In Japan, the maximum permissible stake in banks for such companies is 5%, and in Canada it is 10%.

Analysts justified the RBI’s guidelines.

“The central bank would have kept in mind that before nationalisation of banks, private banks were run like clubs, and never went to smaller areas,” Ashvin Parekh, national leader, Global Financial Services, Ernst & Young, who worked on this reform told HT.