To Be or Not to Be a Bank: Bajaj Finance, Sanjiv Bajaj and RBI Face a Defining Question
As Bajaj Finance continues to scale at a pace few financial institutions in India can match, a fundamental question is gaining urgency: does the country’s largest non-banking financial company (NBFC) need to become a bank? Or is India’s regulatory framework ready to support large NBFCs as durable, long-term alternatives to banks?
At the heart of this debate is Sanjiv Bajaj, Chairman and Managing Director of Bajaj Finserv, and the Reserve Bank of India (RBI), which has historically maintained a cautious stance on granting banking licences to large business houses.
The Numbers That Are Fueling the Debate
The scale Bajaj Finance has achieved is central to this discussion. As of September 30, its loan book stood at ₹4.62 lakh crore, growing at a robust 24 percent year-on-year. For context, Kotak Mahindra Bank reported deposits of ₹5.3 lakh crore during the same period, with growth of about 15 percent.
If Bajaj Finance were a bank today, it would already rank as the fifth-largest private sector bank by balance sheet size. Maintaining its guided growth trajectory of 20–22 percent annually could push its assets under management beyond ₹10 lakh crore by 2030, potentially making it one of India’s largest financial institutions overall.
This rapid expansion naturally raises questions about funding costs, regulatory parity, and systemic risk.
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Why Sanjiv Bajaj Says ‘Not Really’ to a Banking Licence
When asked directly whether Bajaj Finance would eventually need to become a bank to sustain such scale, Sanjiv Bajaj’s response was unequivocal.
“Not really. First, as per the laws of the country, we can’t be a bank because business houses are not allowed to be a bank,” he said.
He argued that the RBI’s current NBFC framework—particularly the multi-tier regulatory structure—already places Bajaj Finance and Bajaj Housing Finance in the “upper layer,” subjecting them to enhanced supervision, governance norms, and compliance standards.
According to Bajaj, this structure allows large NBFCs to raise funds through a diversified mix:
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Bank borrowings
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Debt markets
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Fixed deposits and debentures from retail investors
“I think if we continue doing that into the next decade, it should take us to the kind of numbers that you’re saying,” he said.
The Cost of Funds Argument—and Bajaj’s Rebuttal
A common argument in favor of NBFCs becoming banks is access to low-cost savings deposits, typically priced around 3.5 percent. Bajaj, however, dismissed this as an oversimplification.
“Firstly, banks’ average cost of borrowing is not 3.5 percent,” he said. “Second, we compete in consumer lending, SME lending, and corporate lending with the best of banks. If it was so obvious, we would not be doing as well as we are.”
In his view, competitive advantage in lending is driven more by underwriting discipline, risk pricing, and execution than by deposit access alone.
What Bajaj Wants From RBI Instead
Rather than a banking licence, Bajaj outlined a narrower regulatory ask.
“One of my few asks from RBI is, like RBI provides a liquidity backstop to banks—the lender of last resort—they should offer this to upper-layer NBFCs too,” he said.
Banks receive this privilege because they accept deposits from retail savers and perform quasi-fiscal roles such as priority sector lending and providing basic banking services. Bajaj believes that if certain norms around liquidity access and payments are aligned for large NBFCs—while still protecting small depositors—it could create a strong, scalable credit ecosystem without forcing NBFCs into banking structures.
Why RBI Remains Cautious
From the regulator’s perspective, the concern is not scale but structure. RBI has consistently resisted granting banking licences to conglomerates due to risks of connected and related-party lending.
Banks also play a systemic role:
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They accept deposits from the most vulnerable savers
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They are subject to stricter capital and prudential norms
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They are used as instruments of policy transmission
RBI’s preference has been for large NBFCs to convert into banks if they want access to similar privileges—but without opening the door to corporate control of banks.
The AI Argument: A New Twist in an Old Debate
Sanjiv Bajaj challenged the connected-lending concern head-on.
“Today, I know what kind of monthly data dumps go from us as an upper-layer NBFC to the regulators. With AI, there is no reason why you cannot unearth interconnected lending,” he argued.
His contention is that advances in data analytics and artificial intelligence could allow regulators to detect related-party risks far more effectively than in the past, potentially weakening the core argument against business houses owning banks.
This view is gaining quiet traction, especially as global regulators increasingly deploy technology-driven supervision.
A Broader Industry Question
Bajaj is not alone in pushing this debate. Several large corporate groups are keen on banking licences, especially as foreign financial institutions increase their stakes in Indian banks and NBFCs. The underlying argument is simple: if India aims to grow at 8–9 percent annually and achieve its “Viksit Bharat 2047” vision, domestic capital will need to play a central role.
Yet every RBI governor, including the current one, has stopped short of embracing this shift.
For Now, Confidence Without a Bank Tag
Despite the regulatory uncertainty, Sanjiv Bajaj remains confident.
“For now, we can grow Bajaj Finance at the same pace we have over the past two decades, even without a banking licence,” he said.
Whether AI-enabled supervision eventually shifts RBI’s stance remains to be seen. But the question—to be or not to be a bank—is no longer academic. It sits at the intersection of regulation, technology, and India’s next phase of financial expansion.
