L&T awaits RBI norms to decide on banking foray

L&T Finance Holdings Ltd, the L&T Group’s financial services holding company, is currently waiting  for the Reserve Bank of India (RBI) to announce the guidelines for new bank licenses to decide on foraying into the banking sector, said a top official. Sumeet Maheshwari, chief executive officer, L&T Infrastructure Finance Ltd, told reporters in Hyderabad on Friday that L&T is keen on foraying into banking business as it enables the transaction business revenue among others. “As a country, we are growing and the banking needs will also grow. As the rural incomes better, the banking needs are going to gallop,” he said, adding that “Me too players will not survive. The new private sector banks will have to offer something unique if they have to succeed.” Saying that L&T is growth hungry, he said the company will also look at other opportunities such as acquisitions of existing banking firms. The company already has two bank investments – 5 per cent each in Federal Bank and City Union Bank, which provide synergy to L&T’s customers in terms of transaction services. “‘But there could be other opportunities in the market and we will look at them. We will look at both Greenfield and Brownfield opportunities,” he said. Further, he said, “If the regulations facilitate easier entry, there will be a lot of players. If it reduces the cost of entry into that business, the cost of setting up, it is worthwhile getting into the business.” The costs, he said, includes not just money but also time for setting up of branches for years to stabilize the business and management energy, which needs to be weighed vis-à-vis the benefits the business offers. “Banking comes with a lot of other requirements and you need to weigh them. There is no free lunch,” he said. He said the existing branches of the L&T Finance were only suitable to do the existing business and not suited to address the needs of retail customers in the banking operations. The bank branches will have to be in the visible areas and proper locations to make them convenient for the retail customers. He said RBI has requirements such as SLR and CRR for banks that may fetch lesser returns as both SLR and CRR add up to the costs, influencing the lending and borrowing rates. “As an L&T entity if I am able to borrow at very close to those costs, then is it worthwhile for me to get into banking business? The SLR and CRR ratios may increase or decrease. We need to study the regulations as and when they are announced,” he said. Maheshwari said L&T is yet to decide on whether one of its existing financial services entities should enter the banking business or a separate entity needs to be floated for the banking foray. “It all depends on what the RBI guidelines say,” he said. Further, Maheshwari said L&T will sell its equity holdings in two private sector banks Federal Bank and City Union Bank if the banking regulator requires them to exit from the banking investments. “Otherwise, it is a profitable portfolio investment for us like any other investments.”

Financial Chronicle