Banks against corporate foraying into banking: RBI

Banks have advised the Reserve Bank of India (RBI) against allowing industrial houses to enter banking space, even as industry associations, NBFCs and MFIs have been in favour of corporate's into banking.

"Banks were not in favour of the proposal due to the unsavoury past experience in India and abroad and that large capital buffer that would be available to the banks sponsored by industrial/business houses would create an uneven playing field with the existing banks," the RBI said in a statement here.

The RBI also said those who argue against entry of industrial houses to promote banks said any such move will aggravate the already skewed concentration of wealth and political influence, besides creating an uneven playing-field with existing players.

Industry associations, NBFC and MFI sectors have been generally in favour of permitting industrial houses to promote new banks.

The arguments in favour are based on the premise that talent of industrial and business houses, which have the entrepreneurial and managerial talent in running asset management companies, mutual funds and insurance companies and have successfully penetrated into rural India, could be gainfully harnessed in the banking sector.

"Moreover, industrial houses could bring to banking strong governance practices, management expertise, talent, innovation and global best practices especially in customer service, as they have had a long history in nurturing and developing businesses," those in favour argued.

They further said financial inclusion requires higher scale of operations which the industries would be able to bring by deploying large capital.

Those against granting such licences fear that there would be "connected lending" by combining banking and commerce.

"India does not have enough experience in supervising in a scenario where banks are owned by diversified corporates, and allowing such ownership could have serious potential disasters," these arguments said.

They also said India already has a concentrated wealth structure, which influences political decisions.

"Allowing industrial houses to own banks will exacerbate the concentration of economic power and political influence," they said.

The RBI had come out with a discussion paper in August this year on granting of new banking licenses, giving pros and cons of various scenarios.

Diverse views were also received on other asked questions like minimum capital requirements for new banks, promoters' and foreign shareholding in new banks and conversion of NBFCs into banks or pomoting new banks.