The Internal Working Group (IWG) of the Reserve Bank of India (RBI) has recommended non-banking financial companies to form banks. In such a situation, if the RBI approves this, then the way for non-banking financial companies (NBFCs) to become banks will become easier. But the former RBI governor and deputy governor have called it a bad idea. This working group was established on 12 June 2020. After the news of the recommendation, NBFC shares saw a sharp rise of up to 20%.
Internal Working Group Terms
The RBI Working Group recommends that banking rules be simplified. This may give Quality NBFCs this opportunity. The working group has placed two conditions for the bank from the NBFC. First, NBFC has been in business for 10 years. Second, their asset size should be 50 thousand crores. With this, they themselves can be in the form of full flanged bank.
NBFC with more than 50 thousand crore assets in the country
HDFC is the country’s top NBFC in terms of asset size of Rs 50,000 crore. The company had assets of Rs 5.41 lakh crore till the first half of FY 2020-21. Assets of companies like Bajaj Finance, L&T Finance Holdings and Shriram Transport Finance have more than Rs 1 lakh crore. The market assets of Piramal Enterprises and Tata Capital are 76.7 and 83.3 thousand crores respectively.
India’s top-10 NBFC company in terms of asset size
|company||Asset Size (in Rupees)|
|Hdfc||5.41 Lakh Crore|
|Bajaj Finance||1.35 Lakh Crore|
|L&T Finance Holdings||1.09 Lakh Crore|
|Shriram Transport Finance||1.09 Lakh Crore|
|Tata capital||83.3 thousand crores|
|Mahindra & Mahindra Finance Service||78.3 thousand crores|
|Piramal Capital||75 thousand crores|
|Cholamandalam Investment & Finance||70.5 thousand crores|
|Muthoot Finance||57.2 thousand crores|
|Aditya Birla Capital||56.9 thousand crores|
Second condition of IWG
Bajaj Finance started in February 2008. Tata Capital also started in 2007. Apart from this, other companies have also been in operation for more than 10 years. That is, most of the NBFCs are under the second condition of the recommendations of internal working group of RBI.
Former Reserve Bank Governor and Deputy Governor criticized
However, Raghuram Rajan and Viral Acharya on Monday criticized the proposed changes in the banking sector. Under which it has been recommended to allow Indian corporate houses to set up banks. Raghuram Rajan is former Governor of RBI and Viral Acharya is former Deputy Governor. He has called this recommendation ‘bad idea’.
The corporate group includes NBFCs like Bajaj Finance, L&T Finance, Tata Capital, Piramal Capital, Mahindra Finance and Aditya Birla Finance. And politics) will gather strength.
Raghuram Rajan said that if the regulation and supervision were strengthened only by enactment of law, then there would not be a problem of NPA in India. There are many promoters in India, who pass the Fit and Proper test while taking a license, but later their intention gets spoiled.
Country NBFC Status
There are about 9601 NBFCs in the country. The annual growth rate of NBFCs has been 18.6% between March 31, 2009 to March 31, 2019. While the commercial bank grew by 10.7% during this period. The total balance sheet size of NBFCs is 18.6% of the total balance sheet size of commercial bank. In March 2009 it was just 9.3%. The internal working group of RBI said, as on 31 March 2020, the asset size of NBFC has been more than Rs 51 lakh crore.
Great rise in shares
Following the recommendation of the Internal Working Group, the NBFC sector shares in the stock market also performed well. On Monday, shares of Ujjivan Small Finance and Equitas Holdings gained 20-20 percent. The shares of Ujjivan Finance Service were up 18% and Equitas Small Finance Bank also gained 13%. At the same time, shares of Aditya Birla Capital also gained 4%.
Starting capital one thousand crores
The RBI’s IWG suggested that the initial capital for licensing a new bank should be increased from at least Rs 500 crore to Rs 1,000 crore. At the same time, for Small Finance Bank it increased from Rs 200 crores to 300 crores rupees.