Friday, April 4, 2014

Indi - Chini: New Banking Licenses Applicant and Grantee

Indian banking sector is all set to expand its network with RBI giving in-principle approval to 2 entities to function as commercial banks. Currently, India has 27 state-run banks and 22 private sector banks.
The 25 applicants for banking license includes
  • Government organization (India Posts, Tourism Finance Corporation of India, LIC Housing Finance) 
  • Conglomerate House (Aditya Birla Nuvo, L & T Finance Holdings, Bajaj Finserv, Shriram Capital) and 
  • Non Banking Finance Companies along with Broking firm (IDFC, Edelweiss Financial, Muthoot Finance, Reliance Capital, J M Financials, Religare Enterprises, Bandhan Financial Services, Magma Fincorp, SREI Infrastructure, Suryamani Financing Company, IFCI, Indiabulls Housing Finance, INMACS Management Services, Smart Global Ventures, India Infoline , J M Financial Services, Janalakshmi Financial, UAE Exchange & Financial Services)

Of the above list of applicant, IDFC and Bandhan Financial Services received in-principle approval for venturing into commercial banking space. Both the entities have 18 months window to secure permanent licence and begin banking activities.

Both the grantee are from diverse background, while IDFC specializes into infrastructure lending, Bandhan is involved in micro finance sector. Allotment of license to Bandhan is an emphasis of apex institution on objective of Financial Inclusion. 

Chinese’s Private Bank License   

Recently, Chinese Central Bank also gave license to private banks to function as commercial banks in China.

Granted (Limited) License to
In agreement between the People's Bank of China, Australia and New Zealand Banking Group (ANZ) and Chinese government, a new entity ANZ China be formed, to operate as a market maker for NZD-CNY on the China Foreign Exchange Trading System. ANZ China will enable Chinese banks to directly trade the two currencies and offer direct settlement to customers in Chinese and New Zealand market.

Chinese government has approved following companies to participate for banking license, with the objective to set up 5 private banks planned, each with two joint investors in four wealthy province
  • E-commerce companies Alibaba and Tencent Holdings 
  • Auto parts manufacturer Wanxiang China Holdings Co Ltd 
  • Airline operator JuneYao Group
  • Conglomerate Fosun International Ltd
  • Shenzhen Baiyetuan Investment Co Ltd, the largest shareholder of Joincare Pharmaceutical Industry Group Co.
  • Tianjin Shanghui Investment Co Ltd, a subsidiary of pharmaceutical conglomerate Tasly Holding Group Co Ltd;
  • Copper materials producer Huabei Group
  • Power plant equipment producer Chint Group
  • Petrochemical and plastics conglomerate Huafeng Group

Of all applicants, only Alibaba and Tencent have experience in banking function. While, Alibaba’s financial arm (Alipay) is engaged in creating new financial products, online payment solution and providing small loan, Tencent operates several financial companies. Alibaba has team up with Wanxiang China Holdings Co. Though China Banking Regulatory Commission (CBRC) have approved number of entity, none of the entities (Except Alibaba and Tencent) posseses expertise required to function as bank, which may have a negative impact on Chinese Banking Industry.

Source: Economic Times, Reuters.