Indian Banks: Large corporate houses must not be getting into the business of banking: is a thought that former RBI governor Raghuram Ranjan and ex-deputy governor Viral Acharya believe.

It would be disastrous to get the private corporate houses to come into the banking is considered a ‘bombshell’ of a proposal and it is ‘best left on the shelf’. The experts believe it is a plan that should never see the light of the day. 

Taking to the serious social media platform for networking professionals, Mr. Ranjan said that the RBI would have to go through some significant amendments before the corporates could be roped into running the show. This would include amending the Banking Regulation Act of 1949 that aimed to increase the RBI’s powers, before allowing corporate houses into banking. 

According to Mr. Ranjan and Acharya, the apprehensions in a shift towards corporate houses are evident and should not be ignored. They have listed two main reasons – making loans accessible and danger of concentrating power of control.

Undeniably, corporate houses have themselves been known to borrow money from larger nationalized banks. Kingfisher Airlines was a classical fall of the Icarus case. Vijay Malaya borrowed beyond his capacity to pay back, leading to the embarrassing disclosure of the  fragility of the Indian banking system and the pathetic sense of judgement on a private corporate. 

Further, RBI used to hold certain group exposure norms that limit the amount of exposure the banking system can have. These were recently relaxed. The problem is that it becomes difficult to ascertain the connections that make a borrowing entity part of an industrial house. The demarcation can become tricky leading to chances of money laundering and fraud. 

Bank Licensing can also be tricky when an industrial house has political connections and powerful backing of initial investment. The sense of fairness will disappear. 

With government support, many banks receive the buttresses they need. Many depositors leave their earnings with smaller nationalized banks on this trust factor. The corporate may not be able to do justice to this kind of sentiment.