India Financials: Is a banking license worth it?

Research evidence excerpt

India Financials: Is a banking license worth it?

24 June 2026

India Financials

Nearly 15 years ago, the debate around whether NBFCs should transition into banks gained Pranav Gundlapalle

+91 226 842 1407 prominence when the RBI opened a licensing window. At the time, ~26 entities applied,

pranav.gundlapalle@bernsteinsg.com but only two—Bandhan and IDFC—secured licenses. In hindsight, missing the opportunity

appears to have been advantageous for many. Over the subsequent decade, most NBFCs

Ishan Mittal that did not convert have generated superior investor returns, outperforming not only the

+91 226 842 1442

ishan.mittal@bernsteinsg.com license winners but also several leading banks. In contrast, institutions that transitioned into

banks (with AU Bank as a notable exception) have generally struggled to create sustained

Anirudh Gupta shareholder value. This report examines the drivers behind these divergent outcomes and

+91 226 842 1456 what may shape trajectories going forward.

anirudh.gupta@bernsteinsg.com

The gap between promise and reality: The rationale for conversion was compelling

—access to lower-cost deposits, improved profitability, and a more stable regulatory

framework. However, this advantage has proven difficult to realize.

- Cost of funds benefit has been elusive: Over time, the cost of funds gap between

banks and NBFCs has narrowed significantly, reducing the intended benefit of conversion.

Newly converted banks, despite investing heavily in deposit franchises, have often

had to offer higher rates to gain market share, resulting in only modest funding cost

improvements.

- Regulatory burden grows: While the cost advantage remained elusive, regulatory

requirements have imposed material and ongoing costs. CRR, SLR, and Priority Sector