India’s NBFCs Request Official Banking Licenses from RBI

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Oct. 8 – This Thursday, several of India’s non-banking financial companies (NBFCs) requested official banking licenses in a meeting with the Reserve Bank of India.

NBFCs are financial institutions that provide banking services without meeting the legal definition of a bank. Notable examples are: Tata Capital, Mahindra Finance, Reliance Capital, IndiaBulls, Religare, IL&FS and Aditya Birla Financial Services.

Such companies already operate in financial markets in India through lending, purchasing or selling shares, stock, bonds, or other marketable securities. A change made in August allows them to hedge against their exposure to global fluctuations in currency by purchasing foreign currency futures. This new request, if granted, will endow them with full legal status as banks, giving them the ability to issue checks and participate in deposit insurance and credit guarantee programs.

NBFCs feel holding enough capital to become banks will not prove difficult.

“Whatever requirements are needed, we all are willing to fulfill,” said Mahesh Thakkar, director general of the Finance Industry Development Council, which represents the NBFC sector. “Currently the capital adequacy is Rs.500 crore and, in future, if RBI wants to increase it in a phased manner, we are ready to go up to Rs.1000 crore.”

NBFCs, if allowed to act as banks, may play a vital role in lending as Indian companies continue to expand.