#Tatas pull out of race for #bank #licence . Frustration over the need to obtain approvals from over 1,000 of its group companies and reluctance to rejig global operations to meet the Reserve Bank of Indias eligibility criteria have compelled the Tata Group to withdraw its application for a bank licence. The $100 billion salt-to software group was seen as one of the frontrunners in the race for a bank licence. Wednesdays announcement came as a surprise as it had for long nurtured a desire to re-enter the sector. The Tatas are the second to withdraw after Videocon Group dropped out of the race in September. This leaves 24 applicants, including the Aditya Birla group, Reliance ADAG and Bajaj Finserv in the fray. Given that we have more than 1,000 companies in the group, it was impossible to complete a detailed assessment, seek the requisite approvals from various affected Tata companies prior to filing of our application, a statement issued by Tata Sons, the holding company of the group, said. It added that some companies may also need to take internal and regulatory approvals. RBI is expected in January to announce the successful applicants to set up the countrys first new banks in a decade. Although Cyrus Mistry-led Tata Sons has canned its banking plans for the time being, the company said that it will look to enter the sector in the future. The company said that the groups current financial services business would need to be restructured to meet the requirements of a banking licence. This will impact its operations not only in India but also internationally. The group earns more than 60% of its revenues from overseas. Tata Sons statement further said that group companies with overseas operations at times need to provide financing to customers. RBIs guidelines for aspirants require all their financial services business to come under one non-operating financial holding company (NOFHC). According to the group, this might not always be possible in the case of overseas companies. An equitable framework needs to be agreed on how some of these situations will be addressed. Overseas financing is further complicated as the law in some countries require the operating company to partner with a local bank to set up a financing company. Compliance of such requirements would not be possible under the existing guidelines wherein all financial services entities in the group necessarily need to be owned by the NOFHC and no group company can have a direct shareholding in entities, the statement said. Whether such a restructuring would be of value to operating companies was also a question that was examined, the statement added. It concluded that the current financial services operating model best supports its business strategy and provides adequate operating flexibility. Following the amendment to the Banking Regulation Act last year, RBI acquired powers to regulate not just promoters of banks but also the entire conglomerate. In exercise of these powers RBI had been calling for information on all group companies, including overseas arms, information pertaining to funding and regulatory action for the past five years in some cases. The Tata Groups interest in banking stem from their historic presence in the business. In 1917, it set up Tata Industrial Bank, which got merged with Central Bank of India in 1923. The group, which has a presence in almost all of the financial services business, had earlier stated that it wanted to be a universal bank. Its renewed interest in the banking sector became evident in 2007 when it acquired a 4.7% stake in Development Credit Bank.
Posted on: Thu, 28 Nov 2013 02:36:07 +0000
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