Congress leader Rahul Gandhi on Tuesday asked people to understand the “chronology” of the measures proposed to reshape the domestic banking industry in another swipe at the Centre. Gandhi was using a phrase by Union home minister Amit Shah to explain the Bharatiya Janata Party’s (BJP’s) plans to implement a nationwide National Register of Citizens (NRC). Shah had use “aap chronology samajhiye (understand the chronology)” last year.
“Chronology samajhiye: First, karz maafi for few big companies. Next, huge tax cuts for companies. Now, give people’s savings directly to banks set up by these same companies. #SuitBootkiSarkar,” Gandhi wrote on Twitter.
The former Congress president’s tweet comes in the backdrop of an internal Reserve Bank of India (RBI) panel’s proposal to allow large corporates to act as promoters of banks after necessary amendments to the Banking Regulations Act,1949 “to deal with connected lending and exposures between the banks and other financial and non-financial group entities”. The RBI panel has also recommended raising the cap on promoters’ stake in private sector banks to 26%.
The central bank had constituted an Internal Working Group (IWG) on June 12 this year to review extant ownership guidelines and corporate structure for Indian private sector banks. The committee’s report was made public last Friday and RBI has sought comments by January 15, 2021, “before taking a view in the matter”.
Well run large Non-Banking Financial Companies (NBFCs) with an asset size of Rs 50,000 crore and above, including those owned by a corporate house, may be considered for conversion into banks - subject to completion of 10 years of operations and meeting due diligence criteria and compliance with additional conditions specified in this regard, the group suggested.
However, several experts including former RBI governor Raghuram Rajan have warned against the move to allow large corporate houses as promoters of banks. “Why now? Have we learnt something that allows us to override all the prior cautions on allowing industrial houses into banking? We would argue no. Indeed, to the contrary, it is even more important today to stick to the tried and tested limits on corporate involvement in banking,” said a LinkedIn post by Rajan and former RBI deputy governor Viral Acharya.
They argued that since industrial houses need financing, they can get it easily, with no questions asked, if they have an in-house bank. The history of such connected lending is invariably disastrous, they said, wondering how a bank can make good loans when it is owned by the borrower.