Former RBI governor Raghuram Rajan and former deputy governor Viral Acharya have criticized the recommendation to allow corporate houses to set up banks. Both say that in today's situation this decision is shocking and a bad idea. Rajan and Acharya said in a joint article that it is appropriate to leave this proposal for now.
Significantly, an internal working group (IWG) constituted by the RBI made several suggestions last week. The Internal Working Group constituted by RBI has proposed to approve large companies to become promoters of banks after necessary amendments in the Banking Regulation Act. The Working Group has also proposed to convert large non-banking financial companies (NBFCs) into banks. RBI will issue the final guidelines based on this report.
The biggest thing in these recommendations is that it has been advocated to grant banking licenses to non-banking financial institutions that have assets of more than Rs 50,000 crore and have a track record of at least 10 years as well as large industrial households can also be allowed to run a bank. With the recommendations of the Reserve Bank committee, the war has also started. Rajan and Acharya said in a joint article that it is appropriate to leave this proposal for now. The article said, 'The history of banking has been very tragic. When the owner of the bank will be the borrower, then how will the bank be able to give a good loan? Even when an independent and committed regulator has information from all over the world, it is difficult for him to keep an eye everywhere to ban the distribution of stuck loans.'
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