Banks are not in favour of the proposal to allow the entry of industrial houses into private sector banking.This is due to the “unsavory past experience in India and abroad and the large capital buffer that would be available to the banks sponsored by industrial/business houses that would create an uneven playing field with the existing banks”, the Reserve Bank of India said on Thursday. However, the federations and associations of industry as well as the NBFC and microfinance institutions were generally in favour of permitting industrial/ business houses to promote new banks.
Releasing the comments received by the RBI on allowing new private banks, the apex bank said, “experience of other countries shows that combining banking and commerce implies there would be a lot of connected lending. India does not have enough experience in supervising in a scenario when banks are owned by diversified corporates, and allowing such ownership could have serious potential disasters.”
Another suggestion received by the RBI said, “industrial houses have the entrepreneurial and managerial talent in running asset management companies, mutual funds and insurance companies and have successfully penetrated into rural India, as such, their talent could be gainfully harnessed in the banking sector”
“If industrial/ business houses are permitted to promote banks, they should not be allowed to have their own banking operations through the bank they have promoted. Banks promoted by industrial houses should be issued only a retail banking license for first 5 years. Subsequently, commercial banking should be allowed with restrictions on annual credit lines, extensive reporting requirements relating to large credits, etc,” said another suggestion.
Releasing the comments received by the RBI on allowing new private banks, the apex bank said, “experience of other countries shows that combining banking and commerce implies there would be a lot of connected lending. India does not have enough experience in supervising in a scenario when banks are owned by diversified corporates, and allowing such ownership could have serious potential disasters.”
Another suggestion received by the RBI said, “industrial houses have the entrepreneurial and managerial talent in running asset management companies, mutual funds and insurance companies and have successfully penetrated into rural India, as such, their talent could be gainfully harnessed in the banking sector”
“If industrial/ business houses are permitted to promote banks, they should not be allowed to have their own banking operations through the bank they have promoted. Banks promoted by industrial houses should be issued only a retail banking license for first 5 years. Subsequently, commercial banking should be allowed with restrictions on annual credit lines, extensive reporting requirements relating to large credits, etc,” said another suggestion.
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