Former chief economist of World Bank Kaushik Basu on RBI proposal to allow corporate houses to set up banks said as a "good-looking step in a bad direction" and "may lead to crony capitalism and eventual financial instability". He further said that there is a good reason why all successful economies have a clear dividing line between industries and corporations on the one hand, and banks and lending organisations on the other side of the line.
The former chief economic adviser during the UPA period, said, the close connection between industrial corporations wants to borrow and banks who wish to lend speeds up lending activities and makes the banking sector look more efficient. "But such connected lending is almost invariably a step towards crony capitalism, where a few big corporations capture the business space in the country, slowly edging out the smaller players".
"I think creating avenues for some Non-Banking Financial Companies (NBFCs), which are not controlled by industrial houses, into proper banks is worth considering seriously. But the change in law that will allow industrial houses to own and run banks is a completely wrong move and a recipe for two possible outcomes — crony capitalism and financial crash," he opined.
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