Larsen & Toubro (L&T), India’s largest engineering and construction company, plans to apply for a banking licence through its subsidiary, L&T Finance, to get access to cheaper funds and enhance its presence in infrastructure funding.

AM Naik, chairman of L&T, said they were among the three large non-banking financial companies in the country and that they expected to be a bank. “We are going through the RBI’s discussion paper and would provide our feedback by September 30,” he said.

“We also expect the government to come out with some policy decision by the end of December on companies planning to enter the banking space, after which we will apply for the licence. In the meantime, we will evaluate the trend, and also how L&T Finance should be restructured to make the best use of its banking licence,” Naik told reporters at its annual general meeting.

The Reserve Bank of India on August 12, 2010, in a discussion paper, proposed three different options for minimum capital requirements of new banks. The first one argued for a capital base above Rs 300 crore, the second for Rs 1,000 crore, and the third for an initial minimum capital of Rs 500 crore which can be increased to Rs 1,000 crore in five years. The RBI has sought feedback from companies by September 30.

L&T also plans to unlock the value of L&T Finance by early next year, based on market situation.

“We are evaluating various options for unlocking the value of our financial unit, L&T Finance. Based on what comes out of the policy decision, we will either go for an IPO or a private equity participation,” Naik said.

Besides, L&T is in the process of restructuring its real estate, power development and infrastructure business into separate verticals, since the company has been actively building its concessions business over the past few years.

“With the increase in the number and maturity of concessions, L&T is in the process of restructuring them into independent verticals like infrastructure, realty and power development. L&T will continue to selectively exploit the growing opportunities in all the aforesaid sectors,” Naik told the AGM.

The company has a capital expenditure of around Rs 1,500-2,000 crore every year in the engineering sector. However, in the next two years, once the Hyderabad metro project and other road and infrastructure projects come up, the capex is likely to increase to Rs 3,000-4,000 crore, Naik said.

vikassrivastav@mydigitalfc.com