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Mahindra and Mahindra Group believes that it meets most of the criterion set out by the Reserve Bank of India for bagging a banking licence and is quite excited at the opportunity of floating a bank, said a top official.
“We believe we qualify on most of the parameters set out in the guidelines like high credentials of the group and well-run financial services business, which has been profitable all through.
“We provide various financial services like vehicle financing, home loans, insurance broking and distribution. We have a good network in rural areas,” said Ramesh G. Iyer, Managing Director and CEO, Mahindra & Mahindra Financial Services Ltd. Mahindra & Mahindra Financial Services is the financial services subsidiary of tractor and utility vehicle maker Mahindra & Mahindra.
The subsidiary, which had assets under management aggregating Rs 25,645 crore as at December-end 2012, is primarily in the business of financing purchase of new and pre-owned auto and utility vehicles, tractors, cars, commercial vehicles and construction equipments.
An internal committee, headed by Group CFO Bharat Doshi, has been constituted to discuss and deliberate the suitability of the opportunity for the group.
On whether, banks are better than NBFCs, Iyer said, “Every financial intermediation model has pros and cons.”
“If we become a bank, we may lose on margins but gain on lower cost of funding. As a bank, you may get more products to finance, than you will get as an NBFC. The fee-based income will be higher probably for a bank than for a NBFC,” he said.
On the other hand, an NBFC can do some businesses like auto business far more aggressively than a bank can.
Iyer said Mahindra and Mahindra is weighing options on the route to be taken — converting the existing NBFC into a bank or floating a new holding company — for forming the bank. The group has submitted its clarifications to the Reserve Bank of India on April 9.
According to the RBI guidelines, entities / groups in the private sector, including promoters / promoter groups with an existing NBFC, that are ‘owned and controlled by residents’ and entities in public sector shall be eligible to promote a bank through a wholly-owned Non-Operative Financial Holding Company.The initial minimum paid-up voting equity capital for a bank has been prescribed at Rs 500 crore.
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