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Tatas, Birlas join dozens to set up banks

A number of surpise entrants including gold loan company Muthoot Finance and India's postal department — India Post — have joined the Tatas and the Birlas in the race to acquire banking licences.

india Updated: Jul 02, 2013 03:06 IST
HT Correspondent
HT Correspondent
Hindustan Times
Hindustantimes

A number of surpise entrants including gold loan company Muthoot Finance and India's postal department — India Post — have joined the Tatas and the Birlas in the race to acquire banking licences.

As the Reserve Bank of India's (RBI's) July 1 deadline for sending applications ended on Monday, at least 25 companies were confirmed to have applied for licences, even though official sources indicated that only five to six new licences would be issued and that the process may take six to eight months .

India Post, which has 90% of its 154,822 branches in rural areas, is likely to one of the main contenders. RBI norms make it compulsory for new lenders to have at least a quarter of their branches outside cities.

According to RBI data, around 480 million of India's population living in villages currently have no banking access.

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Established private sector groups that have applied for a licence include Tata Sons, Aditya Birla Nuvo, Muthoot Finance, L&T Finance, Religare Enterprises, Reliance Capital, Edelweiss Financial and SREI Infrastructure Finance. They face strong regulatory checks to separate banking from other businesses. Among public sector giants IndiaPost, Power Finance Corporation (PFC) have evinced interest in entering the banking space.

"Applications have come in, it would take at least six to eight months to study them carefully before new licences are issued," an official source, who did not wish to be identified, said.

As reported first by Hindustan Times, government-owned PFC has separately sought the RBI's nod for a banking foray.

However, according to another proposal, PFC also wants to pick up a substantial stake in a mid-sized public sector bank, which is already in operation.

A few companies such as the Mahindra Group have decided not to apply for a licence due to stringent guidelines after having announced their intent to bid for one.

Government sources said most countries are still apprehensive about giving banking licences and in the Indian scenario, too, the RBI had to ensure that there was no conflict of interest between established businesses and their banking operations.

The RBI last issued banking licenses 10 years ago to Yes Bank and Kotak Mahindra Bank.

The finance ministry is keen to have more banks in the country to promote financial inclusion and infuse competition in the sector to bring in more efficiency.

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