Tata will get a bank license - The Honest Truth By Ajit Dayal
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Investing in India - Honest Truth by Ajit Dayal
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PRINTER FRIENDLY | ARCHIVES
25 NOVEMBER 2013


The 26 applicants for the bank licenses need not wait for the official response from the Reserve Bank of India. Their fate has been decided by hundreds of readers of the Honest Truth who are clear on which groups deserve their trust - and which do not.

The overwhelming response by readers of a previous Honest Truth ("Can you bank on them?") suggests that Tata Sons is the group that a majority of people will trust their savings with. The Tata group, owners and managers of the Central Bank of India before it was nationalised by the autocratic Indira Gandhi in 1969, were clear favourites. The other groups that made the Top 10 included conglomerate L&T (number 2), Life Insurance Corporation (numbers 3), the Department of Posts (number 4) and morphed infrastructure company IDFC (number 5) which was one vote ahead of Aditya Birla Nuvo (number 6) and two votes ahead of Bajaj Finserv (number 7).

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This suggests that, if only 5 licenses were to be awarded, the spot for the fifth will be a fight between the 2 large industrial groups (Bajaj and Birla) and IDFC. IDFC is a strange institution which has deviated from its original goal of being an investor in infrastructure projects and veered on a path of being an investment banker, a stock broker, and a mutual fund. All this support and help from the government and the bureaucracy only to end up as a mediocre "me-too" finance house focusing on its growth in market cap.

Table 1: Tata leads the Top 10 by a wide margin.
Sr # Name of Entity The Votes for "Who should get a banking icense?" The Votes for "Who I would like to keep my deposit with?" Adding the 2 previous columns - assumes that those who we keep our deposit with are the people who deserve the bank license
1 TATA SONS LTD 82 37 119
2 L&T FINANCE HOLDINGSD LTD 60 29 89
3 LIC HOUSING FINANCE LTD 59 27 86
4 DEPARTMENT OF POSTS 58 20 78
5 IDFC LTD 33 21 54
6 ADITYA BIRLA NUVO LTD 36 17 53
7 BAJAJ FINSERV LTD 38 14 52
8 IFCI LTD 26 5 31
9 SHRIRAM CAPITAL LTD 17 9 26
10 MUTHOOT FINANCE LTD 9 1 10
Source: Responses to "Can you bank on them?" Honest Truth, November 13, 2013.

The people say "No"
Readers were asked to give their Top 5 - or more if they wished - choices for 2 related questions:

  1. Who would they keep their deposits with? and
  2. Who should get the banking license?
The tail end of the table at number 26 was crowded by 5 hopefuls: Inmacs Management Services Ltd, Magma Fincorp Ltd, Smart Global Ventures Pvt Ltd, Suryamani Financing Ltd, and Value Industries Ltd each had Zero Votes.

Financial hopeful Muthoot Finance managed to scrape through at 10 (with only 9% of the votes won by the winner Tata), Reliance Capital came in at number 12, J M Financial at 14, Edelweiss at 15, Religare at 19, and India Infoline at 21.

Does the failure of many financial firms to make the Top 10 reflect the inherent distrust of these entities? The heavy dose of advertising these firms have undertaken in the previous decade, in addition to all the speaking opportunities their talking heads get on various TV channels, would have suggested a clear win for them compared to the boring industrial houses. Could it be that there is a perception these financial firms have failed to look after the interest of their clients in their existing businesses (where clients may have already entrusted them with a portion of their savings) and now there is a clear desire from clients not to see them win a banking license.

Interestingly a few readers were nice enough to suggest that Quantum should apply for a banking license because they trust us more than they trust anyone else! ☺ (No, SEBI, your continued desire to protect the investors in mutual funds by calibrating "seriousness" to the ridiculous proposed rule of a higher minimum "net worth" is only a way to protect the mafia that has exterminated the retail investor. But that is the topic of another Honest Truth!)

Now that the readers of The Honest Truth have had their say, it will be interesting to see what the final list drawn up by RBI looks like. Let's wait and see....

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Disclaimer: The Honest Truth is authored by Ajit Dayal. Ajit is a Director at Quantum Advisors Pvt. Ltd and Quantum Asset Management Company Pvt. Ltd. The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and has not been authenticated by any statutory authority. The author, Equitymaster, Quantum AMC and Quantum Advisors do not claim it to be accurate nor accept any responsibility for the same. Please read the detailed Terms of Use of the web site. To write to Ajit, please click here.


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5 Responses to "Tata will get a bank license"

balram das

Dec 5, 2013

tata will do best performance in Banking like other fields

Like (3)

Adityaa Guneriwala

Nov 29, 2013

Hi

nice article

Could you share how many votes SREI infrastructure Finance got
Thanks

Like (3)

Yatin

Nov 28, 2013

The Tata's have withdrawn from the race and as is the fate of most Indians, they have realised how futile and cumbersome it is to do business in India with the amount of Red Tape, Corruption, Paperwork, Time taken etc. This is failue of the Government and failure of the People of India who vote for such corrupt parties time and again. We have enough good banks already, what is needed is a strong regulator and good decision makers.

Like (6)

SKundu

Nov 27, 2013

Tata Sons have withdrawn their application :(

Like (5)

MURALI

Nov 26, 2013

Good effort !!
Seems most of the participants in the poll were those who are not interested in broking houses or who may have lost money in the stock market.. this inadvertently leads to lessening of trust in these companies. Tata being one of the oldest group run professionally as well as having an image of Trust, naturally qualifies to be No.1. Further trusting someone to hold one's life's savings is a very serious matter and so the voting...

Like (6)
  
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