On Friday, Governor Shaktikanta Das confirmed that the Reserve Bank of India (RBI) does not intend to permit business houses to establish banks. He emphasized that enabling corporate entities to promote banks could lead to conflicts of interest and related-party transactions. Das made these remarks at an event organized by the Financial Express.
“At this point, there is no thinking in that direction,” Das responded when asked about the possibility of allowing business houses to promote banks. During the last round of licensing about a decade ago, the RBI had disqualified several conglomerates from launching banks. The topic resurfaced in 2020 when an RBI working group suggested it could help meet the nation’s growth aspirations by infusing more capital.
Das stressed that banks differ fundamentally from other businesses. Historical evidence from around the world indicates that involving business houses in banking leads to significant challenges in monitoring and regulating related-party transactions. He referenced the era before bank nationalization in the late 1960s when Indian business houses were involved in banking.
“Experience world over has shown that it will be very difficult to monitor or to regulate and prevent related-party transactions. The risks involved are very high,” Das said.
While acknowledging the need for resources to fuel economic growth, Das stated that India does not require an increased number of banks to achieve its aspirations. Instead, he advocated for sound, healthy, and well-governed banks capable of mobilizing savings nationwide through technological advancements and meeting credit requirements.
Das noted that the licensing process for universal banks is now available on tap, and applications are welcome. He also highlighted the rapid growth of the private credit sector, which currently presents attractive investment opportunities for those with a high risk appetite. The RBI is closely monitoring developments in this space.
“While risks appear to be contained at present, it is important to bear in mind that vulnerabilities and interconnectedness in these markets can amplify negative shocks and pose financial stability concerns,” he added.
Summary Table:
| Topic | Details |
|---|---|
| Current Stance | No plans to allow corporate houses to promote banks |
| Risks Highlighted | Conflicts of interest, related-party transactions |
| Historical Context | Similar issues before bank nationalization in the 1960s |
| Preferred Banking Model | Sound, healthy, well-governed banks |
| Private Credit Sector | Growing rapidly, monitored by RBI |