New bank licenses: Private sector players emerges aggressive

The new bank license policy issued by the RBI has so far attracted many private players to start banking business. Ambitious corporate including L & T Finance Holdings, Reliance Capital, Tata Capital, Aditya Birla Financial Services, Mahindra and Mahindra Financial Services Religare and India bulls are preparing to unveil their strategies.

But some credible public sector players are either silent are not getting enough government patronage amidst the private sector attracting limelight. The IFCI, India Post etc are having enough merit to start banking business. IFCI is the first Development Financial Institution (DFI) in India. Most of its peers including the IDBI and ICICI; who were established after the IFCI as DFIs, have already converted into banks. In the case of IFCI, the institution has lost its importance in the financial sector and the government can consider the option of converting it into a bank.

  Of all the candidates, the public sector service giant, India Post is the most suitable candidate and is well deserved to be renovated into a bank. The India Post’s banking license is a matter of national priority given the large number of employees associated with it. Besides, it has recorded around Rs 7000 croes loss in the last year because given its sizable cost on network and infrastructure maintenance; the fast eroding postal service can’t give it enough revenue. Advantage of India Post is that the public sector entity has the largest networks compared to all other candidates.

In the new budget, the Finance Minister has allocated nearly 5000 crore Rupees to Postal Department for establishing core banking solution and providing IT support. This is indeed a right step and follow up is required to assure its candidature as a bank.

Another public sector aspirant is the license sector behemoth- the LIC sponsored, LIC Housing Finance. With huge cash and tremendous profit record, the LIC Housing Finance is the most reputed candidate of all new aspirants. Post sanctioning, it may emerge as a strong bank given its sovereign protection advantages.

Surprisingly, the wonder kids of the gold loan market- Muthoot and Manappuram are not serious about banking sector entry. But in towards the end of the current gold price cycle, the RBI may be stricter with regulations on gold loan and this may put an end to their dream run in the sector. For these two firms, a banking sector license is a good opportunity to graduate.

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