- RBI’s approval of licenses to IDFC Limited and Bandhan Financial Services Ltd., 2 leading non-banking finance companies, is by its own admission conservative. 4 years back Pranab Mukherji had mooted this idea.
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The complex process involved thorough examination all the 25 applications to confirm eligibilty in Feb 2013, after which a Bimal Jalan led High Level Advisory Committee recommended these 2 NBFCs.
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This proposal which the RBI was itself largely opposed to and was taken up following pressure from the Finance Ministry, and received a lot of negative responses by sceptics who believe the new banks have nothing new to offer.
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The principle behind the licenses has been to extend the geographical coverage of organised finance and to promote financial literacy and inclusion. Lessons learnt from this exercise will help RBI revise guidelines to make licenses available on an ‘on-tap’ basis.
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IDFC and Bandhan, with infrastructure finance and microfinance as their respective strengths, are expected to become role models for others. They now have 18 months to satisfy all the requirements under the guidelines, and any other conditions that may be imposed.
- Challenges faced by them include:
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Scale up to being universal banks and compete with existing institutions.
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Create a customer-friendly, tech-savvy model.
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Reward shareholders who enabled them a large investment of Rs. 500 crore.
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Exams Perspective:
- Non Banking Finance Corporations (NBFCs)
- Micro-finance
- Financial Inclusion