India’s largest microfinance insititution SKS Microfinance is planning to convert into a bank and is waiting for the Reserve Bank of India’s (RBI) guidelines that will shed light on the eligibility and the conversion process.
About 12-15 Non Banking Finance Companies(NBFC’s) and corporate houses which includes the Tatas, AV Birla Group and Reliance ADAG group which already have exposures to the financial sector have shown a keen interest in acquiring these banking licences. Shriram Transport Finance and the Mahindra and Mahindra group have also stated that will be applying for these licenses.
SKS Microfinance’s interest in banking is prompted by the fact that it would help it to reduce its cost of capital. At present, the cost of capital for microfinance players in India stands at 13-14 per cent but once they get transformed into a bank, it could decline drastically to 6-7 per cent.
After its IPO which is likely to hit the market before June 2010, SKS Microfinance’s networth is likely to be over Rs 1,500 crore. Some analysts believe that SKS Microfinance meets all the RBI guidelines to set up a bank and hence, SKS Microfinance may not meet with disappointment if it seeks a banking licence from the regulator.