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Tatas back out of race to enter banking

By Bhawna Gupta

  • 27 Nov 2013
Tatas back out of race to enter banking

Tata Sons Ltd, the holding arm of the diversified business conglomerate, has withdrawn its application made on July 1, 2013 for a new bank licence, as per a company statement issued on Wednesday.

Early this year, the country’s banking regulator Reserve Bank of India (RBI) had received 27 applications for the licence but a 

Videocon Group-linked entity had withdrawn its application. The exit of Tatas leaves 25 applicants vying for around half a dozen licences which would allow that many new private banks to enter the financial services sector.

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Although RBI has not said how many licences will be issued, the finance minister had said that seven licences would be issued and the names of those who would be issued these licences will be finalised by first quarter of 2014.

Tata Sons said that on a detailed evaluation of the guidelines for licensing of new banks and analysis of clarifications thereafter, it has reached a conclusion that the group’s current financial services operating model best supports the current needs of the Tata group’s domestic and overseas strategy, and provides adequate operating flexibility to its companies, while securing the interests of the group’s diverse stakeholder base.

“After prolonged deliberations and detailed analysis, Tata Sons has decided to withdraw its application dated July 1, 2013, from the current round of licensing. Tata Sons remains committed to financial inclusion and believes that the group’s existing financial services footprint uniquely positions it to provide technology excellence and access to India’s hinterland. The company shall continue to monitor developments in this space with great interest and looks forward to participating in the banking sector at an appropriate time,” it said.

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It did not specify which guidelines in particular made it decide against an entry into banking. VCCircle earlier reported that a conglomerate like Tatas may have difficulty in meeting some norms such a limiting group exposure to lending.

The Tata group comprises over 1,000 companies engaged in multiple sectors and geographies, with a significant presence outside India.

RBI placed on its website a list of 26 applicants for new bank licences in the private sector on July 1, 2013 and intimated the change in the names of applications earlier on September 6, 2013 in which one applicant, whose name was not disclosed earlier, was added while Videocon’s withdrawal from the licence race was noted.

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The guidelines for licence for new banks in the private sector were issued on February 22, 2013 and the RBI followed it with clarifications on June 03, 2013. The last date to apply for the licence was July 1.

The Tatas, Aditya Birla Group and L&T Finance Holdings were among applicants in the race for banking licences. Others included Reliance Capital, Religare, JM Financial, IDFC, Kochi-based gold loan company Muthoot Finance among others.

Another business house which decided to stay away from the banking space was Mahindras.  Mahindra & Mahindra Financial Services Ltd (Mahindra Finance), the flagship financial services arm of the Mahindra group, had also backed out of its proposed entry into banking in June this year. The non-banking finance company (NBFC) said that guidelines do not address transitional issues adequately. It did not apply for the licence.

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(Edited by Joby Puthuparampil Johnson)

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