Those In Debt, Will Become Bankers And Lend Money To Public- How Fair Is This Practise Of The RBI?

Public Sector Banking Veterans Criticize the Policy of Reserve Bank of India, cite examples of failures like GTB, Centurion, Times and Development Credit Bank Limited

Posted : 25 November, 2020
Author : Vivek Avasthi
Those In Debt, Will Become Bankers And Lend Money To Public- How Fair Is This Practise Of The RBI?

As the Reserve Bank of India panel recommended giving nod to issue banking licences to big guns including Reliance Industries Limited, Adiyta Birla Group, Tata Group, Bajaj Group, Piramal Group etc., the move has drawn a flak from veterans of Public Sector Banks who say that the Reserve Bank of India has been diluting its own norms since 1992. They question the need plus the timing of the RBI for this move. The RBI committee suggested that only a well-managed NBFC with 10 years of experience and assets of at least Rs 50,000 crore should be allowed to become a bank. 

Those who have been in banking for over four decades now, say that despite all regualations in place, private banks play smart once it comes to mandaroty rural banking. Rather than opening up branches in rural India and villages, they opt for mid points which are semi-urban and semi-rural and are located on the outskirts of towns, thereby smartly positioning them in rural category. And as a new bank branch is open, there is less footfall of customers, they quickly grab the attention of account holders who are using nearby Public Sector Banks. Prompt service due to less accounts, witnesses transfer of accounts from Public Sector Banks to these private bank branches. 

Thomas Franco, Former General Secretary of All India Bank Officers' Confederation (AIBOC) says "The RBI has been diluting licensing norms from 1992. Out of 10 banks licenced 4 don’t exist now. Holding in banks is totally banned in US even now based on the principle commerce and business can’t go together. In our country it was prohibited till 2005. Then allowed 10%. Now the proposal is to increase it upto 40% but reduce to 26% in 15 years. This is totally unhealthy and people will be at the mercy of corporate houses if implemented. It is also against the Draft Corporate Governance released by RBI. If Ambani, Adani and Agarwal are going own Banks that will be end of financial inclusion. Already many private banks are failing. Money of the common man is not going to be safe with these private banks. The trust in banking system will go. That’s not good for the country." 

Former RBI Governor Raghuram Rajan and Former RBI Deputy Governor Viral Acharya have already criticised the proposal to allow corporate houses to open banks. Both known economists have suggested shelving the recommendation to give entry to Indian business houses in banking. Rajan is currently a professor at Booth School of Business at the University of Chicago, while Acharya is a professor at Stern School. They have termed this as a "bad idea".

In a note published on LinkedIn on Monday, Rajan spoke of the IWG’s proposal that allowing corporate houses to open banks would add more economic (and political) power to certain business houses. Rajan is currently Catherine Dusak Miller Distinguished Service Professor of Finance at the Booth School of Business at the University of Chicago. Acharya is a professor at Stern School.

He also questioned the timing of the proposal and said that India is still trying to take lessons from the failures of IL&FS and Yes Bank. Rajan said that many of the recommendations of the IWG are acceptable. He, however, said that his main recommendation to allow Indian business houses to enter the banking sector should be put on hold.

S&P Global Ratings also questioned corporate ownership in the bank on Monday. The ratings company, in its commentary, cited large corporate defaults over the past few years.


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