The Telegraph
Thursday , December 20 , 2012
Since 1st March, 1999
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NBFC scrips come alive

Mumbai, Dec. 19: A day after the Lok Sabha passed the banking bill, the focus of attention turned to the candidates jostling for the lucrative licences to start banking operations.

Shares of non-banking finance companies (NBFCs) today rallied on the bourses, riding expectations that they are better placed to grab the coveted honour.

The Reserve Bank of India is yet to come out with its final guidelines on new licences. But the green signal from the Lower House of Parliament has ignited hopes that the whole process will now move into top gear.

The central bank had earlier been insisting that it would kickstart the process only after the law makers making the requisite changes in the legislation grant it the powers to inspect the books of associate companies of a bank.

On Wednesday, there was no official word from the central bank about when it proposed to come out with the final guidelines.

Shares of NBFCs such as Edelweiss, Religare Enterprises, M&M Financial, Shriram Transport Finance, L&T Finance Holdings, Srei Infrastructure Finance surged today. While Srei Infrastructure rose 2.32 per cent to Rs 46.25, Edelweiss spurted 2.42 per cent at Rs 35.95. Mahindra & Mahindra Financial Services gained nearly 1.51 per cent.

Religare Enterprise and Shriram Transport Finance saw their shares rising over 2 per cent and 1 per cent, respectively.

“NBFCs such as the M&M group, the Shriram group, the Bajaj group and L&T Finance Holdings may look at getting bank licences once the final guidelines are out because all of them have a good book size,” says Rajat Rajgarhia, director (research) at Motilal Oswal Financial Services Ltd.

Good buying in banking stocks saw the BSE benchmark Sensex rising 111 points to close at a nearly two-week high of 19476.00 points today.

Rajgarhia added that several NBFCs planning to morph into banks already have a fairly large loan book size ranging between Rs 20,000 crore and Rs 50,000 crore.

The RBI has issued 12 banking licences since 1993. Ten banks were set up after the guidelines for private banks were framed in 1993. Two more were established after the guidelines were revised in 2001. Some of the weaker banks have merged with others since then.

The 1993 guidelines had set a minimum capital requirement of Rs 100 crore. This was raised to Rs 200 crore in 2001 guidelines with the rider that it would go up to Rs 300 crore after three years.

In its discussion paper floated in 2010, the RBI had tossed a number of capital requirement options: Rs 300 crore, Rs 500 crore or more than Rs 1000 crore. It still has to make up its mind on the figure.

With the central bank set to issue more bank licences, there is also talk that it could lead to consolidation in the sector as lenders look to merge and achieve a viable scale of operations in order to be ready to face increased competition. In such an event, it is felt that some of the old private sector banks could be M&A targets.