New Delhi/Mumbai:State-owned Rural Electrification Corp. Ltd (REC) is in talks with two foreign banks for setting up a commercial bank through the joint venture (JV) route in India.
There’s only one problem. The country’s banking regulator is yet to finalize rules for the grant of licences and start the process of issuing them, but REC wants to be prepared.
“As we are awaiting the guidelines, we are in discussions for the partnership. Of the banks that we are in discussions with, we will be selecting one as a partner,” said H.D. Khunteta, chairman and managing director of REC.
Of the two banks, one is a Japanese lender and the other is European. Khunteta, however, declined to name the banks citing confidentiality. “The (final) contours of the JV will be decided after the policy guidelines are in place,” he said.
REC joins aspirants that include Srei Infrastructure Finance Ltd, Religare Enterprises Ltd, Shriram Transport Finance Co. Ltd, L&T Finance Ltd, Bajaj FinServ Ltd, Indiabulls Financial Services Ltd, Birla Capital and Financial Services Ltd, Tata Capital Ltd and Reliance Capital Ltd.
An analyst wasn’t too enthusiastic about the idea of REC entering banking.
“It is not clear why a firm like REC needs to set up a bank. It is too early to even think about the chances of REC securing a licence,” said Santosh Singh, analyst with Espirito Santo Securities. “Also, converting itself into a bank does not really makes sense for REC as it will only increase its operational costs compared to what they are today.”
Another analyst said becoming a bank would help REC grow. “Remaining a non-banking financial company wouldn’t allow it to expand and grow. Also, the Indian banking sector is extremely lucrative,” said a Delhi-based power sector analyst who did not want to be identified.
Shares of REC rose 0.85% on Wednesday to close at Rs 177.95 on BSE. The benchmark Sensex dropped 1.3%.