pros and cons of RBI being bankers Bank
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In a list of recommendations presented by an Internal Working Group (IWG) to the Reserve Bank of India on 20 November, it has been suggested that private corporations be allowed to enter the Indian banking system.
The IWG was created to review extant ownership guidelines and corporate structure for Indian private sector banks. One of the recommendations made by the working group — for permitting entry of corporate houses into the banking sector — include necessary amendments to the Banking Regulation Act, 1949 to prevent connected lending.
Problems with the proposal
Talking about disadvantages of the IWG’s recommendation, Gupta said there were “too many of them”.
Gupta also mentioned concerns raised by former RBI governor Raghuram Rajan, former RBI deputy governor Viral Acharya, former chief economic advisors Shankar Acharya and Arvind Subramanian, former finance secretary Vijay Kelkar, and economist Vivek Kaul about bringing corporate houses in banking.
The banking sector in India has been in trouble for the last few years, keeping that in mind the RBI is 2016 had created new guidelines on limit of lending to a single company. If a bank lends too much to one company only then it risks losing that money if the company sinks. Compare that rule with the new proposal, which only large companies will be able to fulfill. With the new rule, the RBI will create large capital, large entrepreneurship and large lending capacity, which, all in one hand is not healthy,” Gupta said.
He also said this will lead to the creation of money into the hands of some, which could corrupt politics even more. “And they say, in the best of all worlds, powerful regulators need to be truly independent and impartial boards. But such a thing does not exist in India, if anything, the independence of the regulators and institutions in India has been under an attack, and they’ve been getting weaker by the day instead of getting stronger.”