The big banking news of the week was the closing of applications for new licenses. After much last minute scrambling, the list of applicants totaled 26, an eclectic mix of conglomerates, NBFCs and India Post, the country's postal service.
Banking licenses have been debated and desired in India for years. Now that they're imminent, are they really the opportunity they're made out to be? New banks have it tough - a crawling economy; poor credit environment; a business that survives on razor thin margins; and stiff regulatory conditions, such as 13% Capital Adequacy, operationalization within 18 months, and a branch network that's 25% rural.
These conditions favor those entities which have already built an asset book and rural distribution network. Hence one would have thought that Shriram Transport Finance Company, with its dominant position in a niche business like used commercial vehicle (truck) finance would have a natural advantage. But by insisting that NBFCs (STFC is one) give up their status and conform to CRR/SLR mandates straight off the bat, the RBI has managed to deter or deflect such institutions (Mahindra and Mahindra Financial Services backed out and the Shriram application came from holding company Shriram Capital and not STFC).
That leaves India Post, a behemoth with an unparalleled network and rural savvy. Will that be enough to counter its total lack of banking knowledge and soft skills? And what's bridging this deficit going to cost?
Its unclear who's going to benefit from the new banking license. Let's hope someone does.
Banking licenses have been debated and desired in India for years. Now that they're imminent, are they really the opportunity they're made out to be? New banks have it tough - a crawling economy; poor credit environment; a business that survives on razor thin margins; and stiff regulatory conditions, such as 13% Capital Adequacy, operationalization within 18 months, and a branch network that's 25% rural.
These conditions favor those entities which have already built an asset book and rural distribution network. Hence one would have thought that Shriram Transport Finance Company, with its dominant position in a niche business like used commercial vehicle (truck) finance would have a natural advantage. But by insisting that NBFCs (STFC is one) give up their status and conform to CRR/SLR mandates straight off the bat, the RBI has managed to deter or deflect such institutions (Mahindra and Mahindra Financial Services backed out and the Shriram application came from holding company Shriram Capital and not STFC).
That leaves India Post, a behemoth with an unparalleled network and rural savvy. Will that be enough to counter its total lack of banking knowledge and soft skills? And what's bridging this deficit going to cost?
Its unclear who's going to benefit from the new banking license. Let's hope someone does.
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