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Mumbai: Monday saw a steady procession of executives from companies, including some of India’s best-known, making their way, laden with boxes of documents, to the Reserve Bank of India’s headquarters on Mint Road. They were on their way to stake their claim to promote banks, on the last date for applying to do so.

Aditya Birla Nuvo Ltd, Tata Sons Ltd, L&T Finance Holdings Ltd, Religare Enterprises Ltd, IDFC Ltd, Indiabulls Housing Finance Ltd, India Infoline Ltd, Magma Fincorp Ltd, Shriram Capital Ltd and microlender Bandhan Financial Services Pvt. Ltd were among the 11 applicants who filed their papers with the central bank on Monday. Tata didn’t respond to emails.

In a late-evening release, RBI said a total 26 entities had applied for banking licences.

The list of 26 includes Reliance Capital Ltd, India Post— the Indian government’s postal department—Edelweiss Capital, Janalakshmi Financial Services and Videocon Industries Ltd (through Value Industries Ltd).

The succesful applicants will be the third set of private sector banks entering India’s 77 trillion banking sector. The central bank has so far given licences to 12 private banks in two rounds. The central bank will screen the applications, and refer them to a high-level advisory committee. It will then take a final call based on the committee’s recommendations. This could see the new banks starting operations some 12-18 months after they get a licence.

Shinjini Kumar, executive director at PricewaterhouseCoopers, said only a few aspirants will finally fulfil the requirements set by the RBI, and expects around five-six applicants to receive banking licences.

Most applicants are confident they will make the cut.

On Monday, Nirmal Jain, chairman of India Infoline, was among the first to arrive at RBI, accompanied by three executives carrying boxes of documents required to apply for the licence.

RBI’s guidelines, announced on 22 February, require applicants to prove their eligibility on several fronts— from promoter-holding to past experience to business plans.

“We are well-placed to become a bank," said Jain after submitting the application. “We have a huge reach to 4,000 locations with 2,000 branches, 60% of which are in semi-urban and rural areas."

Some analysts are sceptical about India Infoline’s chances because of the group’s presence in the stock broking business.

In its guidelines, RBI said the applicants shouldn’t be involved in businesses that “put the bank and the banking system at risk on account of group activities such as those which are speculative in nature or subject to high asset-price volatility".

Jain said this wasn’t a problem because the contribution of the broking business to the group’s revenue is under permissible limits.

Some of the applicants were keen to highlight their focus on inclusion (or reaching out to people who are usually ignored by mainstream finance companies) or their ability to reach people in India’s rural hinterland—one criterion that RBI will look at.

“Financial inclusion is RBI’s main requirement. We are quite eligible to float a bank that fulfils this need," said G.S. Agarwal, vice-president, business intelligence, Magma Fincorp.

“We have very strong chances of getting a licence. Out of our five million customer base, around 90% do not have any bank accounts. We have also created a technology platform and are currently training our staff to become a bank," said Chandra Shekhar Ghosh, founder and managing director of Bandhan.

Increasing competition was RBI’s primary motive in awarding new bank licences in the past but this time the central bank’s aim is financial inclusion. Around 40% of India’s adult population doesn’t have access to banks.

According to RBI’s 22 February guidelines, the new banks will have to maintain a minimum capital adequacy ratio—ratio of capital to risk-weighted assets, a measure of financial strength—of 13% for the first three years.

New banks need to list their shares on stock exchanges within three years of starting operations.

The minimum capital required by applicants for licences is 500 crore, and foreign shareholding in the new banks will be capped at 49% for the first five years.

The new banks should be set up under a non-operative financial holding company (NOFHC), RBI said.

“The regulations provide that the CRR (cash reserve ratio) and SLR (statutory liquidity ratio) will be applicable from inception, even though building of the current account, savings account (CASA) will take some time for a newly-converted bank," MMFSL said.

The Chennai-based Shriram financial services group has applied for a banking licence through holding company Shriram Capital and not market-listed companies such as Shriram Transport Finance Co. Ltd, the country’s largest truck financing company, and Shriram City Union Finance Ltd, a retail finance company.

According to RBI guidelines, if Shriram wants to become a bank then it will have to give up its NBFC tag.

RBI issued the first round of licences for new banks in 1993 when it allowed 10 private banks to enter the business. They were Global Trust Bank Ltd, ICICI Bank Ltd, HDFC Bank Ltd, UTI Bank Ltd (renamed Axis Bank Ltd), Bank of Punjab, IndusInd Bank Ltd, Centurion Bank Ltd, IDBI Bank Ltd, Times Bank and Development Credit Bank Ltd.

In 2003-04, two more banks were given licences—Kotak Mahindra Bank Ltd and Yes Bank Ltd.

Of these, Times Bank was merged with HDFC Bank in February 2000—the first of the so-called friendly mergers in India’s banking history and also the first involving a share swap.

Global Trust Bank was forced to merge with Oriental Bank of Commerce in August 2004 after the Hyderabad-based lender succumbed to the burden of non-performing assets, largely because of its exposure to the stock market.

Bank of Punjab was acquired by Centurion Bank in June 2005 to form Centurion Bank of Punjab. Three years later, in May 2008, HDFC Bank took over Centurion Bank of Punjab.

ICICI Bank, HDFC Bank and Axis Bank, promoted by financial institutions, have emerged as the top three private banks in the country.

ICICI Ltd, the project finance institution that promoted ICICI Bank, was merged with the bank in 2002 as the parent found it difficult to survive without access to cheap funding, and competition between financial institutions and commercial banks intensified. Industrial Development Bank of India (IDBI) followed this route and merged with IDBI Bank in 2004.

Zahra Khan in Mumbai and S. Bridget Leena in Chennai contributed to this story.

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