RBI doesn’t allow big industrial and corporate houses to enter banking sector. But then why did it allow Hinduja group to enter banking. They are the promoters of Indusind Bank.
Indus Ind bank was established in 1994. RBI has shown reluctance to give new licence because of their bad experience in corporate houses to run banks.
Similarly Kotak Bank was established in 2003
The general consensus among experts in this field is that Corporate house should be kept away from owning bank licence.
RBI has increased the promoters stake in a bank from 15% to 26%. This is the max promoters can hold in a bank. Indus Ind bank at present holds 16% (approx) whilst Kotak owns 26%
1 Like
I don’t exactly remember and I could be wrong too, but I think I have read about Bajaj Finance wants a banking license.
Just because they want it doesn’t mean they will get it
IDBI bank is up for sale and today I heard in news that Government has disallowed industrial houses from bidding for it because as per RBI norms, industrial groups can’t enter banking.
Thats why this question came to my mind. I searched on internet but didn’t find anything.
I don’t think these laws are written in stone. RBI may change its stance and rules depending upon the situation, arrive at a decision case by case.
They say India is a credit starved country, so a NBFC with good reputation on the street, entrenched deeply into the credit system, may get a chance, who knows.
Of course I am speculating.
1 Like
When HDFC and HDFC bank merger was announced, Mr.Deepak Parekh had mentioned that the recent changes in regulations for non-banking finance companies (NBFCs) and banks by the Reserve Bank of India was one of the key reasons for the merger of the two entities.
“Few of the guideline was large NBFCs to be converted into commercial banks, particularly those with over Rs 50,000 crore asset base.
NBFC need to follow the same NPA classifcation as Banks as well as liquidity coverage ratios.
NBFC to follow core financial solution system like the banks which is following a core banking system and risk based internal audits.
These measures have considerably reduced regulatory arbitrage which was there between a bank and an NBFC.
Discl: extracts of an interview given by Mr.Deepak Parekh
Other business house owned NBFC would be reluctant to apply for licence because they need to follow the 26% promoter/ownership rule . This will result in dilution of their holding.
2 Likes
I think Bajaj Finance wanted a license. I don’t know the update.
And obviously any company will take any decision for its own benefit, so if applying for a banking license will be beneficial, despite the dilution, then they may apply, if not no.
Financial sector is tough to understand for me, so I don’t follow.
Bajaj has interests in sectors other than BFSI as well like Automobiles, Electric appliances etc. So as you mentioned above this creates conflict of interest. So RBI may be reluctant to allow them to become a bank.
@ANKIT_T You hit the nail on the head. This is the main reason RBI and other experts are reluctant to grant banking licence to these business house. However, great the integrity of the owners are, it is quite natural for them to lend to their own business house (althought there are caps set). Once a bank, they deal with public money.
1 Like
So lets make a bet.
If BF gets banking license in 5 years, you gift me 1 BF share, if it does not, I will gift you 1 share 
I don’t gamble like you.
This is not gambling, this is a gentlemen bet
Buffett made a bet like this with someone with a time frame of 10 years or so on index investing, we are doing a 5 years.
It is gambling as it involves uncertainties.
What if RBI changes it’s stance tomorrow?
What if Bajaj decides to exit from it’s non finance businesses in return for a banking licence ?
Of course, there are many possibilities, that is the point, making an educated guess, picking one among the possibilities, and hope the guess happens, the pick becomes real.
Whichever may be the outcome we can agree upon something, if not a BF share, something else then 