Non-Banking finance companies with assets of over Rs 50,000 crore that meet the RBI’s size criteria to get Bank licenses for corporates or NBFCS owned by large corporates. However, it has left the door open for NBFCs that are owned by corporates if they have been around for 10 years. Payment banks can convert to small finance bank after three years, A big challenge for the NBFCs to convert into banks will be the cost of investment in technology and setting up branch network. They will also have to face additional cost for complying with the SLR of 18% and the CRR of 4% and not all NBFCs can meet this cost of compliance.
Conversion to a bank could help many NBFCs in terms of sustainability and growth, but would also mean that they would have to follow more regulatory and compliance norms. Many NBFCs have deeper penetration in teir-2 & 3 cities and also in rural India, It could be more advantageous to convert to bank as broader regulations are coming in line with banking norms for NBFCs.
The panel also suggested that the current rule of the promoters of a bank has to hold a minimum of 40% in the lender for the first five years, should continue. The panel, while proposing a hike in promoter holding in private banks to 26% also said that the promoters could voluntarily choose to bring down their holding further after lock-in of five years. Promoters not allowed to pledge bank shares during lock-in period.
Road Ahead
To make definite road map for NBFCs and also NBFCs could penetrate as India grows to 5 trillion Economy Increased corporate involvement into the banking sector may also translate to greater concentration of financial, economic or political might within select business houses.
Overall NBFCs would benefit from internal working group of the Reserve Bank of India (RBI)
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