Special situation: RBI Banking licenses clarification

8 Jun

Making money from this Gobbledygook Clarification by RBI

RBI

Whichever company gets a license should see a surge in its share price.Having made that clear, let us go ahead and identify the key candidates and eliminate them(if possible) or estimate a probability of the companies getting a license. This would require us to eliminate/qualify companies based on RBI clarification.

Let us first see what RBI has clarified:

  1. “Companies which would be eligible to apply must have a public shareholding of at least 51 per cent.”
  2. Only non-financial services companies and non-operative financial holding companies in the promoter Group would be allowed to hold shares in the holding company
  3. Corporates and public sector entities with sound credentials, Rs 500 crore capital and a minimum track record of 10 years would be allowed to enter the banking business.

Point 2 is a bit confusing as to whether Financial services companies can not hold shares in the holding company at all or a Special Purpose Vehicle created by such companies would be allowed to do so. Let us assume it is the latter(till i find out more on this).

List of suitors

Coming to the companies’ stocks which can see gain because of this announcement, given below is a list of contenders from an article by Livemint

  1. Aditya Birla Financial Services
  2. Bajaj Finserv
  3. Bandhan financial services
  4. India Infoline
  5. IDFC
  6. Indian infrastructure finance
  7. India post
  8. Janalakshmi financial services
  9. JM Financial
  10. L&T finance holdings
  11. LIC housing finance
  12. Magma fincorp
  13. Mahindra and Mahindra Financial services
  14. Muthoot finance
  15. Piramal enterprises
  16. Power finance corporation
  17. Reliance Capital
  18. Religare enterprises
  19. Rural electrification
  20. Shriram transport finance
  21. SKS microfinance
  22. Srei Infrastructure finance
  23. Tata capital
  24. Videocon industries

My Shortlist after clarification

Logic for shortlist

  • Market cap less than 500 Cr
  • Small brokerage houses have been excluded
  • Strict attitude of RBI towards gold loan and micro finance companies
  • Government owned companies have been excluded , assuming government wants the entry of more private sector players and reduce the risk to government entities
  • Specialized players like Rural electrification and IDFC would be moving away from their core competence if they are given license
  • Core competence not relevant for banking— Videocon
  • Not publicly traded– Eg. Indian post

At lease half of these can be eliminated based on the cut-off criteria given by RBI. My bet would be on the following as top contenders (I may be wrong) :

  1. Aditya Birla Financial Services
  2. Bajaj Finserv
  3. India Infoline
  4. Indian infrastructure finance
  5. L&T finance holdings
  6. Mahindra and Mahindra Financial services
  7. Reliance Capital
  8. Religare enterprises
  9. Srei Infrastructure finance
  10. Shriram transport finance

Will be tracking the share and derivative prices of these shortlisted  stocks

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4 Responses to “Special situation: RBI Banking licenses clarification”

  1. Silversmith Paul June 8, 2013 at 7:22 pm #

    nice blog akash.keep up the thoughtful discourse(though it would be awesome if you could focus on specific situations or trends).
    p.s many a slip between the cup and the lip,what do u think?i m truly unable to see any immediate catalysts for unlocking value here,especially due to the heightened competion
    cheerz

    • Akash Parmar June 9, 2013 at 6:34 am #

      Hi Paul,

      First, let me thank you for your comment. I like the way you expressed yourself.

      I would expect RBI to pick not more than three companies for testing the waters.
      More licenses would follow later based on the result of this pilot. This reduces the competition quite a bit.
      The timeline for granting the license is before July end – 2013 which not quite far in the future and the catalyst to a jump in share price is definitely present.

      Now i will not comment on what position to take to benefit from it, but the opportunity is right in front of us.

      Thanks
      Akash

  2. jayendra June 10, 2013 at 11:13 am #

    nice post. Just a thought…do you feel Sundaram Finance also classifies as per the issued norms ?

    • Akash Parmar June 10, 2013 at 1:38 pm #

      Hi Jayendra,

      Yes it does. And i might have missed it if you had not pointed it out.
      Really appreciate it.

      Thanks
      Akash

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