Financial cos like L&T, Bajaj, M&M lead the race for bank licence

MUMBAI: Finance companies like L&T Finance, Bajaj Finserv, Mahindra & Mahindra Financial Services and Shriram Transport Finance are the favourites in the race for a banking licence, feel leading broking houses.

"NBFCs promoted by large industrial houses are seen as clear frontrunners to get new banking licences. L&T Finance, Bajaj Finserv, M&M Financial have advantage over standalone NBFCs," says a JP Morgan report.

According to the new guidelines issued by the Reserve Bank of India, entities or groups in the private sector and NBFCs shall be eligible to set up a bank through a wholly-owned, non-operative financial holding company (NOFHC).

Brokerage CLSA says the Reserve Bank of India may issue only 4-5 licences over the next 12 months. It expects competition for core deposits as well as talent to increase substantially, along with opportunities for mergers and acquisitions.

L&T Finance is perceived as one of the top contenders for a banking licence, feel broking houses. The company's profile of having diverse financial interest may help it bag a banking licence, says a Deutsche Bank report.

Morgan Stanley, which has put an 'overweight' rating on Shriram Transport Finance, says, the NBFC will be a clear beneficiary from the new banking licence norms, but has advised investors to wait and figure out whether the proposed banking business will be part of Shriram Transport Finance or other businesses of the Shriram Group.

Religare Capital says strong distribution network of NBFCs like M&M Financial and Shriram Transport in semi-urban areas is seen as positive, as RBI has been focusing on financial inclusion.

According to Goldman Sachs, corporate houses like Reliance Industries and Reliance Capital may also apply for a banking licence. The brokerage house, however, adds that stringent rules like regulatory scrutiny and inability of a group to borrow from a bank promoted by it will keep some corporates away.

"Though RBI has not specifically disallowed brokers and realtors from floating banks, but it has done so indirectly by mentioning that promoter or promoter group's business model should not potentially put the bank at risk, because of group activities which are speculative in nature or subject to high asset price volatility," says a Standard Chartered Securities report.

According to Bank of America-Merrill Lynch, government-owned banks may lose meaningful market share to new banks over the medium to long term due to capital constraints and lower focus on customer service.