(Corrects identity of companies in 3rd and 5th paragraphs)
By Swati Pandey
MUMBAI, June 24 India's Mahindra & Mahindra has
dropped plans to enter mainstream banking, suggesting that new
rules intended to make bank accounts more widely available may
be proving too hard for businesses to implement.
Only about half of India's population has access to banking
services. The Reserve Bank of India issued guidelines in
February allowing any type of company to set up a bank, seeking
to improve provision.
But Mahindra & Mahindra Financial Services Ltd,
which already handles loans on vehicles made by sister company
Mahindra & Mahindra, India's biggest sports utility
vehicle and tractor maker, said on Monday it would not seek a
India, whose ratio of bank branches to adults is just a
quarter of that in Brazil, has not granted a new licence for a
bank since 2004, when Yes Bank was set up. The
deadline for applications is July 1.
Mahindra Finance makes loans for commercial vehicles and to
small businesses, and is one of many Indian non-bank finance
companies (NBFCs) that are not allowed to raise low-cost savings
The company said that under the new rules it would have been
forced to convert each of its 670 branches into a bank branch
over 18 months, while at the same time complying with the rule
that at least 25 percent of its branches are in rural areas with
populations under 10,000 and without existing banking services.
"We don't want to move into banking just because there is
opportunity available," Ramesh Iyer, managing director of
Mahindra Finance, said on a conference call.
"The guidelines do not address the transitional issue when
faced while converting a large NBFC (non-banking financial
company) like ours into a banking platform," Iyer said.
The company's shares fell as much as 16.7 percent after the
announcement, and ended 8 percent lower.
SREI Infrastructure Finance Ltd, Edelweiss
Financial Services, Religare Enterprises Ltd
and IDFC Ltd, all NBFCs, have announced their
intention to apply for banking licenses.
Among India's biggest business groups, Anil Ambani's
Reliance Capital has said it is keen to apply. Tata
Group is also expected to apply, several newspaper reports have
said, although it has never made a public statement. Reuters
could not reach the MD of Tata Capital on Monday.
"The norms and the obligations are stringent, so that could
be a bit of a deterrent for some players," said Nirmal Jain,
chairman of brokerage firm India Infoline Ltd, whose
board meets this week to consider a banking licence application.
"Only people with a long-term view and who want to invest
for the long term will apply."
Industry players said a requirement that bars a newly-formed
bank from investing in the equity or debt of any entity held by
its holding company could also deter hopefuls.
Some critics have voiced concern that new banks could make
potentially risky loans to related firms.
(Editing by Tony Munroe/Ruth Pitchford)