A once serious banking aspirant now sees no need for it to succeed in the financial services industry. In an exclusive interaction with businessline, Nirmal Jain, founder of IIFL group and Managing Director of IIFL Finance, says, “We have to revalidate whether it makes sense to become a bank, because you can digitally connect with fintech partners and banks. Right now, we don’t have plans to become a bank, but we will evaluate it at the right time.”

Back in 2013, when the Reserve Bank of India opened doors to companies seeking bank licences, Jain was quoted saying the IIFL group was prepared to meet the reserve requirements from day 1 of operating as a bank. “Ten years ago we were very keen to become a bank. We were actually small, but knew that crisis keeps happening. As a prudent measure we thought that since we don’t have a deposit franchise, it would be good to be a bank and have one [bank licence]. But it did not happen,” he recalls.

Asked what had changed since then, Jain replies that IIFL’s deep-rooted retail focus, which makes these loans attractive to banks for priority-sector loans (PSL) origination and the digitalisation at IIFL Finance have reoriented priorities for the group. “We originate retail and priority-sector loans, which banks want to own or are keen to buy. Given that we are partnering with banks, we can grow in this manner,” he says.

Digital bank licence

Jain is, however, open to the idea of digital banks. When the RBI comes up with guidelines for digital bank licences, the group would evaluate it, he says. In 2022, the NITI Aayog brought out a report on digital banking licences, although the RBI is undecided over the need to issue a new category of banking licences. On asking why these licences are attractive to IIFL, Jain points to the enormous investments in technology in the last 2–3 years. “People don’t perceive us like fintechs, but what we have done in terms of technology for customer on-boarding, credit underwriting and fraud detection, or the collection process, we are pretty much like a fintech. We have a more than 300-strong technology team,” he says.

Call for clarity

Jain stresses the need for clarity over whether non-banking finance companies (NBFCs) can accept deposits. “One of the two things should be permitted — either no NBFCs should be allowed to accept deposits or, on the merit and certain criteria, RBI should issue new licences to permit accepting deposit.”

Reiterating that the current scenario, where some NBFCs that were licensed earlier are allowed to continue taking deposits while others are not, cannot ensure a level-playing field for non-banks. “They should have some sunset clause that existing NBFCs at least stop taking fresh deposits. Ideally, bring in some criteria on capital adequacy, net worth, track record etc, and issue fresh (deposit taking) licences. Whenever they (RBI) come out with a new regulation, they should make it consistent even for the existing players, which may be allowed 2-3 years for transition. Existing players cannot indefinitely have an advantage or differentiated treatment forever.”

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