The Telegraph
Friday , April 4 , 2014
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Punch after permit pang

Mumbai, April 3: Investors today clobbered the stock of those entities that failed to win new bank licences.

L&T Finance Holdings — which was seen as a frontrunner in the race — sank nearly 10 per cent, Srei Infrastructure Finance plunged 8 per cent and Magma Fincorp fell almost 5 per cent.

Others to tumble included LIC Housing Finance which closed with a loss of 1.37 per cent.

The stocks of several aspirants had run up sharply during the past year

Muthoot Finance (2.56 per cent), Reliance Capital (4.51 per cent), Bajaj Finserv (0.78 per cent) and Aditya Birla Nuvo (2.35 per cent) also finished in the red.

The Reserve Bank of India decided yesterday to award two banking licences to IDFC Ltd and Bandhan Financial Services Pvt Ltd.

Experts, however, cautioned that the two new entrants would have their work cut out as they would not only have to build a deposit franchise but also comply with mandatory requirements such as the maintenance of cash reserve ratio (CRR) and statutory liquidity ratio (SLR).

CRR is that portion of bank deposits that must be maintained with the RBI, while SLR is that portion of bank deposit which must be invested in government securities.

Market circles said there was a lot of uncertainty about the timeline for launching the process for on-tap bank licences, which the RBI has promised to introduce.

The banking regulator has also indicated that it would consider issuing differentiated licences for niche banking services.

There is also an apprehension that the next government could stop the entry of new entrants into the banking sector.

The IDFC scrip met with profit booking after initially gains. While the stock closed lower by 2.38 per cent, analysts aver that though an entry into banking will be positive for the infrastructure finance player, in the long-run it will have to face some challenges over the next few months.

“After transforming into a bank, it will take some time for IDFC to build a deposit franchise. Also being a bank, it will have to restrict its specialised area of infra-financing and venture out in to other segments. It will also have to comply with other stringent norms such as priority sector lending, maintain CRR, SLR and restriction on branch expansion,” said a note from Karvy Stock Broking.