Converting Large NBFCs To Banks: Is It Warranted?

An internal working group of the RBI recently suggested that large non-banking financial companies (NBFCs) should convert themselves into Banks.

- Shri V.P.Nandakumar

Although reported in the media as a new suggestion, the fact is, conversion of a non-bank to a bank has been allowed since 2016 when RBI announced ‘on-tap’ universal bank licenses. A couple of non-banks did go on to receive the license and became Banks. In effect, the recent discussions do not change the regulatory aspect much for non-banks who are or were willing, to become a bank. However, it may be a precursor to stricter regulation for those large NBFCs who choose not to.

In this context, I am often asked about my stance on this issue, and the consistent answer I give is that given the choice, we would prefer to continue as a non-bank. The rationale is simple. It is the answer to the question, “Should I do something just because I can do that, or should I stick to doing that which I am good at, and which I do best?” There are many reasons why non-banks may find the option of converting into a bank not worth pursuing.

Conversion may not be worthwhile