Shares of Mahindra and Mahindra Financial Services Ltd (MMFSL) slumped 8 per cent after the company said that it will not apply for banking licence.
MMFSL, seen so far as a strong contender for banking licenses, said that it will continue business as an independent non-banking finance company (NBFC).
The MMFSL scrip fell by Rs 20.75 to close at Rs 236.40 on the Bombay Stock Exchange on Monday.
The financial services subsidiary of the Mahindra and Mahindra Group said that the Reserve Bank of India had laid down too stringent conditions for a company to open a bank and applying for a licence could be counter-productive to its interests.
“The RBI guidelines provide for the conversion of NBFCs into a bank, but do not provide any flexibility for an NBFC and a bank to co-exist for a reasonable period of time.
“The regulations provide that CRR and SLR will be applicable from inception, even though building of CASA (current account, savings accounts) will take some time for a newly converted bank,” the company said in a statement.
The company said that this will impose an undue penalty on large, successful asset finance NBFCs with a pan-India network, that wish to convert into a bank, as compared to small NBFCs with a limited network. “The current set of guidelines, as clarified, has an adverse economic and operational impact on the business of larger NBFCs. A time-bound co-existence of an NBFC and a bank in the same group would help set up a sustainable model and address the concerns of all stakeholders, including the customer base both current and future” it said.
MMFSL’s clarification comes after the RBI put out a note on its Web site on Friday about the July 1 deadline for for applying for banking licence.