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New bank licence: M&M Financial, Religare, SREI Infra soar, RIL down

Shares in financial services firms, expected to apply for new bank licences, surged on Monday. Investors bought stocks such as M&M Financial Services after the Reserve Bank of India announced guidelines for a banking licence on Friday.

Shares in financial services firms surged on Monday after the Reserve Bank announced guidelines for banking licence last week. RBI's announcement paves the way for India's first new banks since the formation of Yes Bank in 2004.

The RBI will allow applications until July 1 and successful applicants have a year to set up a bank. New banks must make a stock market listing within three years - one year longer than had been proposed in the draft rules. (Read: RBI norms on new banking licence)

According to RBI guidelines, any type of company can apply for a banking licence, leading to speculation that big industrial houses such as Reliance Industries may also apply for a licence. (Over dozen corporates, PSUs queue up for banking licences)

RIL shares were down 0.7 per cent at Rs 856.70 on the NSE as of 09.32 a.m.

"Industrial houses who have no financial services record...for them to demonstrate financial services activity would be challenging...," Shachindra Nath, CEO, Religare Enterprises said.

Mr Nath said this opportunity is coming after a long time so everybody would apply, but the big question is who would qualify. At least 10 companies in the financial services domain are expected to apply for licences. (Corporates keen to enter banking space)

M&M Financial Services shares were up 6 per cent at Rs 210.70 on the BSE. L&T Finance, part of construction and infrastructure conglomerate Larsen & Toubro, traded 5 per cent higher at Rs 85.70.

Shares in Religare Enterprises traded with over 7 per cent gains at Rs 290 on the BSE as of 09.32 a.m. Shares in Reliance Capital, promoted by billionaire Anil Ambani, traded 2 per cent higher at Rs 415.50. Aditya Birla Financial Services and SREI Infra (up 6.5 per cent) all said that they plan to apply for licences.

The move to issue new bank licences is intended to increase competition and bring fresh capital to an industry dominated by state lenders and reaches only about half of Indian households. Newly licenced banks will be required to open 25 percent of their branches in rural areas that lack banking services.

(With inputs from Reuters)

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