A working group set up by the Reserve Bank of India (RBI), the regulator, has suggestions for what to do with ownership of private-sector banks. Large industrial houses may be permitted to own controlling stakes, it says, but only after strengthening regulation and supervision to deal with the problem of “connected lending” – basically diverting depositors’ funds to their other businesses.
IS India opening the door for big businesses to take over its banking industry?
A working group set up by the Reserve Bank of India (RBI), the regulator, has suggestions for what to do with ownership of private-sector banks.
Large industrial houses may be permitted to own controlling stakes, it says, but only after strengthening regulation and supervision to deal with the problem of “connected lending” – basically diverting depositors’ funds to their other businesses.
From the conditional nature of the recommendation, it doesn’t appear that the regulator will soon reverse its policy of keeping conglomerates away from banking. But the report could pave the way for backdoor entry. Large groups could acquire non-bank finance firms, which may be allowed to convert into banks.(*) In India’s post-Covid desperation for capital, the financial system might go from being state-dominated to tycoon-led.
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