Finalyst November 2013 Issue November 2013 | Page 19

FINALYST

NOVEMBER 2013

NBFCs are first time borrowers who
find it difficult to borrow from a
bank. NBFCs help their customers in
building creditworthiness. NBFCs do
not face any compulsions for priority
sector lending.
For NBFCs like Mahindra Finance, in
addition to these generic advantages,
there are some specific strategic advantages in not applying for a banking licence.
Applying for a banking licence has
now become high fashion with a
number of NBFCs queued up for a
banking licence. Mahindra Finance as
an NBFC is dominating the rural markets but not without stiff competition. Its competitors, having applied
for a banking licence, will focus very
much on the transition into a bank
rather

than

enhancing

growth.

Mahindra Finance may use this opportunity to increase its market share
in the rural areas. Thus, not applying
for a Bank licence might be considered as a strategic move by Mahin-

NBFCs to convert all its branches into Savings Account) deposits will pour in
banks within the specified time. An immediately after the conversion.
example of this would be Kotak Even though many banks have existMahindra which is still running its car ed for decades, only SBI, ICICI, HDFC
financing as an NBFC subsidiary even and AXIS bank have managed to have
after securing a Bank licence nine a CASA of over 40 percent.
years ago. In rare cases, failure to
convert a branch into bank might
even result in the branch being
closed down. Such events can have

erate successfully for years by raising
public deposits and do not find any
need for CASA deposits.

an adverse effect on a company’s
growth.

dra Finance in order to respond to
current market conditions.

Leading NBFCs have managed to op-

Banks and low-cost deposits:

Looking into the future:
NBFCs have a critical role to play in
our economy. India has a large num-

Another NBFC, Sundaram Finance The main incentive for an NBFC in ber of unorganised markets and
has always been clear on its stand of converting itself into a Bank is the banks often find it difficult to enter
remaining as an NBFC. Its Managing low-cost demand deposits. Banks can into these segments. These markets
Director stated that he did not find get money at a lower cost since there largely depend on NBFCs for funding.
one compelling reason to convert is no interest associated with current
Rural markets usually find it difficult
account and the interest on savings
into a bank.
to satisfy the regulations laid out by
account is fairly low.
Looking into this from a different perbanks in order to get funds. Hence,
spective, the guidelines laid out b ??!?????????????????????????9 
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