Shachindra Nath | 40% of population still not connected to banks

Shachindra Nath | 40% of population still not connected to banks

Reserve Bank of India (RBI) recently released the draft guidelines for banking licences. What do you think about it?

RBI emphasizes on four areas—promoter group, nature of business, non-operative holding company (NOHC) and corporate governance. Promoters should have a credible track record, the entity should have diversified ownership and must have successfully completed 10 years in business. Further, RBI wants to prohibit entities having large interest in certain businesses, including real estate and broking. RBI also wants that promoters should set up a new bank through NOHC. Also, for maintaining checks, 50% of the directors should be independent.

Since the banking business is primarily based on fiduciary principles, we believe these requirements are justified.

Shachindra Nath, Group chief executive officer, Religare Enterprises LtdReligare Enterprises Ltd is keen to foray into the banking space. Does the company fulfil these and other criteria?

Based on whatever we have understood it seems that we fulfil all the criteria. Our broking business contributes less than 10% of our promoter group’s earning. Some analysts are interpreting the brokerage clause differently, but what would matter is RBI’s view and its interpretation is not known to anyone.

The draft guidelines also mandate that at least 25% of bank branches should be in unbanked rural areas. How viable it is to operate in such areas?

Close to 40% of our population is still not connected to the banking channel. In such a situation, the regulator is justified in asking banks to focus on unbanked centres. We believe that opening large branches in small centres may not be viable but operating small branches and leveraging technology makes it a viable option.

Will the public at large benefit from additional licences that RBI would provide?

Considering the fact that there are 79 banks, including government-owned, private and foreign, besides regional rural banks and cooperative banks, there may not be a paradigm shift instantly. But in the long run, people at large would certainly benefit. Since new banks have to open a substantial chunk of branches in areas where existing banks are not present, residents of those areas would have access to banking services.

What has been the response to Religare Finvest Ltd’s non-convertible debenture (NCD)?

The NCD received an overwhelming response. At a time when some other issues struggled for subscription, our NCD was oversubscribed in just three days. Since we are present in 600 cities across India, a substantial part of the subscription came from tier II and tier III cities.

Do you think the introduction of transaction fees for mutual fund (MF) distributors will help expand the reach of MFs?

To expand the reach of the MF industry, it is important that distributors are adequately compensated. The introduction of transaction fees is a step in the right direction. However, the industry still believes that it is too little given the cost structure of the industry.