Keep a watch on NBFC stocks

If you are a regular investor in the stock market, then you must keep a close watch on the NBFC stocks in the week ahead.

It is despite the fact that the finer blueprints are yet to come out.

The government is mulling opening up the banking sector for private players by relaxing some of the rules for the participation of corporate and foreign banks in the banks that the government is looking to privatise.

The debate was stirred by the address of the deputy RBI governor at an event earlier this month in which he had indicated that large NBFCs had potential to enter the banking sector.

Between March 31, 2009 and March 31, 2019, the total assets of NBFCs grew at a compounded annual growth rate (CAGR) of 18.6 per cent, while the balance sheets of scheduled commercial banks (SCBs) grew at a CAGR of 10.7 per cent. Consequently, the aggregate balance sheet size of NBFCs increased from 9.3 per cent to 18.6 per cent of the aggregate balance sheet size of SCBs during the corresponding period. Thus, allowing NBFCs to convert into banks holds water. There are four key areas relating to the aspect which include shareholding, promoter eligibility, start-up capital requirements and NOFHC structure. In fact, the experts are not very much enthused if the industrial houses come forward to have their banking arm in the wake of RBI's call for the same. Going by the report submitted by the internal working group (IWG) on November 20, RBI is planning to allow some big industrial behemoths such as the Tatas, Birlas, and their other counterparts to set up full-scale banks like HDFC and ICICI Bank, an analyst's report said. By the same token, we don't believe industrial houses, even if they own, it aid.

"We welcome the report of the RBI's internal working group on the ownership guidelines and corporate structure for Indian private sector banks. NBFCs with a proven track record, supported by the brand values of reputed corporates, can play a key role in bringing the benefits of banking and economy to the underserved and newer segments of India", a spokesperson for the Aditya Birla Group said.

While Tatas and Birlas have not got any banking arm, Mahindras do have the one in joint partnership with Kotaks (Kotak Mahindra Bank).

The Reserve Bank of India had constituted an Internal Working Group (IWG) on June 12 to review extant ownership guidelines and corporate structure for Indian private sector banks.

As per the RBI report, the cap on promoters' stake in the long run (15 years) may be raised from the current level of 15 per cent to 26 per cent of the paid-up voting equity share capital of the bank.

As regards non-promoter shareholding, a uniform cap of 15 per cent of the paid-up voting equity share capital of the bank may be prescribed for all types of shareholders.

Well run large Non-banking Finance Companies (NBFCs), with an asset size of Rs 50,000 crore and above, including those which are owned by a corporate house, may be considered for conversion into banks subject to completion of 10 years of operations and meeting due diligence criteria and compliance with additional conditions specified in this regard.

On-tap universal banking license 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, an Emkay report says.

Interestingly, Indiabulls Housing failed to get RBI approval for acquiring Laxmi Vilas Bank and indirectly obtaining a banking license. Rather, it was handed over by the RBI to DBS, a foreign sector lender which was unlisted.