RBI panel set up to examine applications for banks, SFBs

NEW DELHI:  The Reserve Bank of India (RBI) has set up a five-member Standing External Advisory Committee for the purpose of evaluating applications for Universal Banks as well as Small Finance Banks. 

The panel will be headed by former RBI Deputy Governor Shyamala Gopinath and the other members are: Revathy Iyer, Director, Central Board, Reserve Bank of India; B Mahapatra, former executive director, RBI and presently chairman of National Payments Corporation of India; TN Manoharan, former chairman, Canara Bank; and Hemant G Contractor, former MD, State Bank of India and former chairman, Pension Fund Regulatory and Development Authority. 

The tenure of this SEAC will be for three years. In November 2020, the RBI made public a working group report that recommended that well-run large non-banking financial companies (NBFCs), with an asset size of Rs 50,000 crore and above, including those which are owned by a corporate house, should be considered for conversion into banks. Stocks of NBFCs such as Shriram Transport, Edelweiss, Cholamandalam and M&M Financial Services all went up in the hope that some, if not all of them, could transform themselves into banks sooner or later. 

In 2016, RBI changed its policy on universal bank licences, making them available ‘on tap’ instead of during specific periods, as the practice earlier was. But, if the last four years are anything to go by, that hope may not translate into reality as just one NBFC—UAE Exchange and Finance Services, now known as Unimoni—has since applied for such a licence. 

Analysts at Emkay Global Financial Services had then said in a note that the latest recommendations of the RBI working group have nothing new for NBFCs, except that those companies backed by large corporate houses will be eligible for a bank licence. “On-tap universal banking licence is anyhow available to most NBFCs and other players for the past few years; however, none have opted for going down the banking route so far,” it added. 

In fact, former Reserve Bank Governor Raghuram Rajan and ex-Deputy Governor Viral Acharya criticised the proposal of recommending entry of business houses into the banking sector citing it could lead to “connected lending” which is “invariably disastrous” and would further “exacerbate the concentration of economic (and political) power in certain business houses”.

‘Turn large, well-run NBFCs into banks’

In November 2020, the RBI made public a working group report that recommended that well-run large NBFCs, including those owned by corporate houses, should be considered for conversion into banks