Saturday, November 28, 2020

Banking Licenses to Corporate May not be a Good Idea

An internal working group (IWG) of the Reserve Bank of India in its report has recommended that large business groups as well as NBFCs which have an asset size of ₹ 50,000 crores or more may be allowed to promote banks in India (RBI, 2020). For an economy like India which has avoided giving banking licenses to corporate and ensured that the banks in India are widely held and there is no ownership concentration in Indian Banks, the proposed recommendation of IWG is a sweeping change and naturally raising a number of questions. Large numbers of economists including the former RBI Governor Raguram Rajan and Deputy Governor Viral Acharya have raised questions about this sweeping recommendation as well as the timing (Acharya & Rajan, 2020). It is quite possible that it may prove to be either good or bad idea for Indian banking sector but only time can give the right answer. However, the practices across the world may give insight into the matter.