Why private banks, their ownership structures need to be strictly regulated

Basic principles and international practice suggest that opening the door to the ownership of banks in India by large corporate/industrial houses should be done, if at all, with utmost caution

Much heat and light has been generated on the publication of the recent internal working group report of the Reserve Bank of India on “Ownership Guidelines and Corporate Structure for Indian Private Sector Banks” (henceforth IWG). Quite rightly most of the attention has been devoted to the IWG’s proposal to consider ownership of banks by large corporate/industrial houses, which, of course, is a reversal of long-standing policy and practice in the country. However, the report is much more wide-ranging and deserves to be considered more holistically.

Let us start with considering why there was a need for this working group