Banking licence aspirants firm up deals

Mumbai: Even before the start of the application process, corporates aspiring for a bank licence are striking strategic deals ahead of putting their proposal before the Reserve Bank of India. On Monday, Reliance Capital and Religare Enterprises announced strategic deals with foreign investors as part of their plans to pursue a banking licence. 

    Reliance Capital said that it had entered into an agreement with Sumitomo Mitsui Trust Bank and Nippon Life Insurance, two leading financial institutions from Japan, which plan to take between 4-5% stake each in the bank proposed to be set up by Reliance Capital if it receives the go ahead from regulators. Religare Enterprises, meanwhile, struck a deal with US bank Customer Bancorp offering a stake worth $51 million through a combination of promoter divestment, preferential allotments and issue of convertible warrants. The transaction was aimed at bringing down promoter stake below 49%. 
    With the last day for applications—July 1—drawing close companies are making public their banking ambitions. Three Kolkata-based groups—Srei, Bandhan and Magma—are all set to apply for a banking licence later this week. LSE-listed Srei Infrastructure is one of the leading infrastructure finance companies in the country, while Bandhan is a leading microfinance firm in the eastern region. Magma is a non-banking finance company (NBFC) with interest in different product lines, including general insurance. 
    The Reserve Bank of India will have two levels of screening of the banks. In the first stage, the panel will identify applicants that are fit and proper. RBI has said that this is a process of elimination and not all fit and proper applicants will get a licence. In the second stage, an external committee will go through applications and make their recommendations to RBI. 
    According to sources, RBI has got in touch with former governors and deputy governors to be part of the screening panel. Former RBI governor Bimal Jalan is one of the names doing the rounds as part of the screening panel. RBI sources said that there was disappointment within the central bank over the inability of some private banks to reach out and expand the market. "The feeling is that some of the smaller private sector banks are focusing almost entirely on shareholder value and there is no attempt to expand their reach of banking services," said an official.