LT Fin, MM Fin rally on new banking licence norms

Shares of non-banking finance companies rallied quite smartly in early trade on Monday after the Reserve Bank of India (RBI) on Friday issued its final guidelines for grant of new banking licences and invited applications from aspirants.

CNBC-TV18 reported quoting sources that the Reserve Bank may issue 4 to 5 licences.

L&T Finance Holdings , a subsidiary of engineering & construction major Larsen & Toubro , was locked at 5 percent upper circuit at Rs 85.70. There were pending buy orders of 326,411 shares, with no sellers available.

JP Morgan is neutral on L&T Finance with a target price of Rs 80. "While the stock is fully valued at the current share price, near term catalysts like a new banking license and possible rate cuts provide strong support," JP Morgan said.

At 09:41 hours IST, Mahindra & Mahindra Financial Services jumped nearly 6 percent to Rs 210.55 while SREI Infrastructure Finance advanced more than 6 percent Rs 38.30 on Bombay Stock Exchange.

Bajaj Finserv gained 4 percent to Rs 856.35 while IFCI rose 2.7 percent to Rs 34.25. State-owned Power Finance Corporation went up nearly 2 percent to Rs 207.95.

The central bank kept July 1 as the deadline to apply for new banking licences.

RBI said the applicants should have a past record of sound credentials, integrity and financial strength with a successful track record of 10 years.

The banking regulator fixed a minimum equity capital level of Rs 500 crore for the banking license aspirants, while capping the foreign holding in the first five years to 49 percent and mandating 25 percent of branches in rural area with population upto 9,999, among others

In line with existing domestic norms, the new bank should also achieve priority sector lending target of 40%. Interestingly, most of the existing banks are failing to meet the target.

RBI said non-operating finance holding company must be fully promoter-owned. "Non-operating holding company will hold 40 percent in new bank for 5 years and will cut stake in new bank to 15 percent in 12 years," the RBI added. Private companies and NBFCs can set up bank via non-operating holding company.

After a span of around 10 years RBI is set to issue fresh banking license. In 2003-04, it had last issued license to Yes Bank and Kotak Mahindra Bank.