The Tata group has pulled out of the
race for a new bank licence , the third large corporate house to do so after initially expressing its interest.
Consumer appliances maker Videocon had previously withdrawn its application for a bank licence while automaker Mahindra & Mahindra (M&M), which was earlier keen to start a new bank, had decided to not submit an application. A total of 26 companies had submitted applications by the Reserve Bank of India's (RBI) July 1 deadline.
The
RBI said on Wednesday that Tata Sons, the group's holding company, has withdrawn its application. "The company has indicated that its current financial services operating model best supports the needs of the Tata group's domestic and overseas strategy, and provide adequate operating flexibility to its companies," the RBI said in a statement.
The Tata group runs a financial services business under Tata Capital, a non-banking finance company (NBFC). M&M also runs an NBFC that focuses on semi-urban and rural areas.
A banking licence
will allow companies to raise low-cost current and savings deposits. In addition, it will allow them to cross-sell many other products like mutual funds and insurance. But industry observers say the RBI's stiff guidelines for bank licences deterred some corporate houses.
The guidelines require banks to meet targets for lending to priority sectors such as agriculture, besides adhering to regulatory requirements like keeping part of the deposits with the central bank.
A section of experts is against giving licenses to corporate houses. In fact, RBI Governor Raghuram Rajan had opposed giving licenses to large corporate houses before he took charge at the central bank. The Aditya Birla group and Anil Ambani's Reliance Group are among the aspirants from the corporate sector.
Earlier in November, Finance Minister P. Chidambaram said at a banking seminar in Mumbai that the RBI should not issue new banking licenses to entities that look like clones of existing banks.
Many corporate houses operate NBFCs with a business model similar to existing banks. Chidambaram also listed out his preference for new banks at the event where Rajan was also present. "We need banks which cater to communities. We need banks which cater to people living in tribal areas. We need a different bank to cater to the northeast. We need banks to cater to the urban poor. We need a bank that caters to farmer families and we need a bank to cater to women," he said.
The RBI is likely to issue new banking licences by January. A committee led by former RBI governor Bimal Jalan is screening the candidates.
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