PFCs in race to enter banking

After non-banking finance companies NBFCs,state-owned power finance companies PFCs Rural Electrification Corporation REC and Power Finance Corporation....

After non-banking finance companies NBFCs,state-owned power finance companies PFCs Rural Electrification Corporation REC and Power Finance Corporation PFC too are in the race to foray into the banking business,a senior official said here today. We are brainstorming on the idea of getting into banking currently. The heads of power finance PSUs will be meeting on Thursday to discuss the issue, REC Chairman and Managing Director Jairaj Phatak said.

REC has also set up an internal committee to deliberate on the subject. Through a presence in banking,we can get access to cheap savings bank funds which can be used for financing, Phatak explained.

However,he added,At present,participants in the deliberations are limited to power finance companies and generating companies like NTPC are not on board.

PFC was set up in July 1986 as a financial institution dedicated to power sector financing and committed to the integrated development of the power and associated sectors. The corporation was notified as a public financial institution in 1990 under the Companies Act,1956. It was registered as a non-banking financial company by the RBI.

REC,under the Ministry of Power,was incorporated in 1969 under the Companies Act,1956. With a net worth of Rs 11,080 crore as on March 31,2010,its main objective is to finance and promote rural electrification projects all over the country. It follows th e prudential norms prescribed by the RBI for NBFCs vide the non-banking financial companies prudential norms Reserve Bank directions,1998.

According to industry sources,NBFCs like Shriram and LIC Housing Finance too are planning to apply for licences from the RBI to register their presence in the banking sector. Taking a lenient view on allowing non-banking finance companies,the RBIs discussion paper on new private banks said,Since NBFCs are already regulated by the RBI and have a track record,the fit and proper concerns could be addressed more easily. The NBFC model,particularly for those in lending activities,has been successful in expanding the reach of the financial system and,thus,by converting to banks,this model could be scaled up to better leverage the benefits and achieve the objective of financial inclusion.

Although the RBI paved the way for the new banking licences,it has not given a time-frame or the total number of licences it plans to grant, said an industry expert.

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Pathak said that REC would be raising 400 million in foreign borrowings by September and will be signing agreements with the lead managers next week. State Bank of India SBI and Bank of Tokyo Mitsubishi have agreed to get 200 million raised and a similar amount has been assured by two Chinese banks Singapore units, Pathak said.

REC was recently given permission by the RBI to raise 200 million with a greenshoe option through which it can raise an equal amount, he added.