Mahindra & Mahindra Financial Services not to apply for Bank License

Mahindra & Mahindra Financial Services’ (Mahindra Finance) board of directors has decided not to proceed with the application for a Banking License, after reviewing the implications of the present guidelines issued by the Reserve Bank of India (RBI) for such an application, along with the clarifications issued by RBI on June 3, 2013. The Board expressed full confidence in Mahindra Finance's plans and prospects for growth as an independent NBFC. Mahindra Finance is a pioneer NBFC in India, and has been successfully serving 2.5 million customers for over two decades helping to achieve financial inclusion in around 1,70,000 villages.

The RBI guidelines provide for the conversion of Non-Banking Financial Companies (NBFCs) into a Bank, but do not provide any flexibility for a NBFC and a Bank to coexist for a reasonable period of time. The Regulations provide that CRR and SLR will be applicable from inception, even though building of CASA will take some time for a newly converted bank. This anomaly, unfortunately, will impose an undue penalty on large, successful asset finance NBFCs with a pan-India network, that wish to convert into a Bank, as compared to small NBFCs with a limited network. The current set of guidelines, as clarified, has an adverse economic and operational impact on the business of larger NBFCs. A time bound co-existence of a NBFC and a Bank in the same group would help set up a sustainable model and address the concerns of all stake holders, including the customer base both current and future. Such an approach is also consistent with the current structure in place in the Indian Banking system.

The board of Mahindra Finance at its meeting therefore decided not to apply for a Bank License under the current set of guidelines read with clarifications and to intimate RBI accordingly along with the reasons for its decision. Should the guidelines be amended, to permit co-existence of NBFC and a Bank in the same group, or should these concerns be addressed in any other manner, the company will be happy to apply for a Banking License.

Mahindra & Mahindra Financial Services, part of the $15.9 billion Mahindra Group, is one of India’s leading non-banking finance companies with a pan India presence. Focused on the rural and semi-urban sector, it provides finance for vehicles and tractors and has the largest network of branches amongst NBFCs operating in these areas.