On Friday, an RBI committee recommended offering such licences to industrial houses by making necessary amendments in banking laws. It has also recommended allowing NBFCs, owned by industrial houses, with an asset size of over Rs 50,000 crore, to be converted into banks.
Tata’s NBFC arm, Tata Capital, has an asset size of over Rs 74,500 crore, while Aditya Birla’s NBFC unit Aditya Birla Capital, has an asset size of over Rs 59,000 crore.
While it will be some time before the final RBI guidelines are rolled out, the two conglomerates have always had banking aspirations. In 2013, the two companies had submitted applications for banking licences when the RBI issued new guidelines for opportunities in the private sector.
But Tata Sons, the holding company of the Tata Group, withdrew its application after it found out that RBI’s conditions were restrictive and adhering to them would impact its other businesses. Aditya Birla Group, on the other hand, did not get a licence as the RBI refused to grant permissions to industrial houses. Only IDFC First Bank and Bandhan Bank had managed to acquire licences. The RBI had said then that all eligible applicants may not be allowed to promote banks.
Several other industrial houses, like Bajaj and Larsen & Toubro, who had shown interest to acquire banking licences in 2013, are expected to evaluate options this time too. These conglomerates have NBFCs that are larger than many mid-sized banks in India.
“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,” said an Aditya Birla Group spokesperson.
For Tata and Birla, it will be a second coming if they win banking licences. In 1917, Tata established the Tata Industrial Bank but the latter ran into trouble and had to be amalgamated with Central Bank of India in 1923. It was the first merger in India’s banking history.
Birlas, meanwhile, established United Commercial Bank (UCO) in 1943, which was nationalised in 1969. G D Birla, Kumar Mangalam Birla’s great grandfather, stayed the chairman of UCO for long before handing over the charge to M P Birla, during whose term the bank was taken over by the Indira Gandhi government.In 2013, Tata Sons had said that RBI rules were coming in the way of its international operations, which account for two-thirds of its multi-billion-dollar revenue. The rule it found restrictive was the RBI’s requirement for conglomerates to transfer their financial services business to a non-operative financial holding company.
But Aditya Birla, in an attempt to procure the licence, had agreed to abide by the rule and proposed to transfer its financial services business to a non-operative financial holding company. In fact, group chairman Kumar Mangalam Birla had stepped down from the board of the RBI in 2013 to avoid conflict of interest.