It is unnatural for NBFCs to seek bank license: RBI Deputy Governor

Mumbai Reserve Bank of India Deputy Governor M Rajeshwar Rao on Friday said it is unnatural for non-banking financial companies (NBFCs) to seek bank licenses. Rao said this is because NBFCs already enjoy some regulatory benefits. Speaking at an event organized by industry body CII, Rao hit out at lenders giving small amounts of money for misusing the freedom given to them by the regulator on interest rates and charging higher interest rates.

He expressed displeasure at the direct lending platforms, saying that some of their business activities are not in line with the licensing guidelines, and made it clear that such violations are not acceptable. The Deputy Governor also talked about the demand from NBFCs to convert into banks and said that NBFCs enjoy certain benefits. Rao said, NBFCs have evolved as specialized companies performing specific economic functions and it is unnatural for them to seek to become like banks. Interestingly, this comment came just after the speech of Sanjeev Bajaj, Chairman and Managing Director, Bajaj Finserv.

Bajaj in his speech had said why not think about bank licenses for at least some NBFCs, especially those that have completed 10 years and met the compliance requirements. To this, Rao said that the regulator had invited applications for universal bank license a few years ago, but no unit got approval for it. He said that RBI is not in favor of allowing more number of NBFCs to accept deposits. He said that not a single new license has been given and the number of deposit accepting NBFCs has come down from 200 to only 26 now.

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