Banking? Too Late Now

CORE CONVERSATION

‘Ship Has Sailed’: Rashesh Shah Of Edelweiss On Banking And Why He Isn’t Keen On A Licence 

What?

Flipkart founder Sachin Bansal’s Chaitanya India Fin Credit has been refused a universal banking licence, Paytm’s payment banking licence has been revoked, landing it in a crisis. Most small finance banks are seeking licences to become universal banks. Yet, Rashesh Shah, founder of financial services major Edelweiss, is not keen on one. 

The Edelweiss group is present across various financial services, from insurance to brokerage to private equity, and is also a non banking financial institution (NBFC) or shadow bank. Unlike most of its peers, it’s not keen on becoming a universal bank, which allows it CASA (current account savings account) privileges for deposit taking. 

Becoming a bank would have been an exciting opportunity ten years back, according to Shah. The golden ticket of receiving a banking licence doesn’t hold the same appeal anymore. According to him, that ship has sailed. 

“Not anymore. If you see what is happening in banking, CASA is becoming very expensive. So, 8-10 years ago, it was still an opportunity. There were spots available. India was underbanked, and it had unbanked parts. Now India is fairly well banked. There are branches all over the place. It's a very highly competitive market,” Shah explains. 

Why?

A few years ago, however, a universal banking licence was what most people hankered after. An NBFC looking to become a bank was a good way to raise deposits that would decrease its cost of funds. Many, like L&T Finance, had tried extensively to become a bank around 10-12 years back.

Yet, the regulator gatekeeps these licences zealously. In fact, no entity received a universal bank licence after IDFC First and Bandhan in 2014. Since then, however, the Reserve Bank of India (RBI) has given 10 licences for small finance banks (SFBs) and 11 licences for payments banks. All this was to serve the vast majority of India’s unbanked and underbanked across towns and villages. 

Many of the SFBs are in a state of flux, too. Most of the recent licensees are not doing well too, in spite of listing their businesses as per the norms. “Most of the banks are trading at book value. We are seeing a lot of the small finance banks and others with much harder struggles because the market has evolved. The bank market has got much more competitive. It requires more capital, more really long term,” said Shah. 

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CORE NUMBER

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PODCAST

On Episode 559 of The Core Report, financial journalist Govindraj Ethiraj talks to Ajay Rotti, Founder and CEO of Tax Compaas, Sheetal Sapale, VP Commercial at Pharmarack as well as K Venkatachalam, Chief Advisor at TASMA.

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👥 THE TEAM

✍️ Zinal Dedhia, Salman SH, Kudrat Wadhwa | ✂️ Rohini Chatterji | 🎧 Joshua Thomas