Very encouraging that RBI accepted 21 recommendations out of 33: IWG member

RBI internal group member hopes that banking licence for corporates would come in future

A member of the Reserve Bank of India’s internal working group (IWG), which had recommended bank licences to industrial houses, said that country, which aspires to become a $ 5 trillion economy, needs large banks and hoped that bank licence will be given to business houses in future.

In November last year, the group recommended that corporate entities should be given a bank licence. On Friday, the banking regulator said it has accepted 21 out of 33 recommendations of the IWG, but the issue of licences to corporate houses were not among the recommendations accepted.

“I hope it (bank licence for corporates) would come, because for a $ 5 trillion economy, we need to have banks; not banks which are perpetually bothered about NPA,” Sachin Chaturvedi, a member of the IWG, who is also a member of the central board of RBI, told Business Standard.

“We need banks that can get the business going, and bring in financial inclusion with much greater emphasis. The large business houses have to make responsibly placed, as a result we have suggested to have measures for capital ring fencing and ring fencing for balancesheet, and separation of control of banks and other entities,” said Chaturvedi, who is the Director General, Research and Information System for Developing Countries (RIS), a New Delhi-based policy research institute said.

He said the RBI has accepted some of the recommendations relating to ring fencing of balancesheet, and others. “So, I think there is a greater willingness to bring in transparency, accountability, and responsible role of the private sector.”

The IWG’s recommendation on the contentious issue of allowing corporate houses in banking drew sharp reaction from former central bankers.

In a joint paper, former RBI governor Raghuram Rajan and former deputy governor Viral Acharya had last year said the proposal to allow industrial houses in banking is a "bad idea".

Chaturvedi said he is glad that the banking regulator has accepted 21 of the 33 recommendations of the working group, which was formed to review the guidelines on ownership and corporate structure for Indian private sector banks.

“I am quite happy (with RBI accepting most of the recommendations)… this has reflected the broad expectations of the committee in terms of identifying all the major recommendations that was needed for enhanced regulatory architecture, the capital ring fencing and controlling the contagion within a group,” Chaturvedi said.

“I think the broad regulatory ecosystem has now been accepted, and it will be valid for future days to come, both when it comes to digital banking and also in terms of how we look at future to move forward. I think this is extremely encouraging, as they have accepted 21 recommendations out of 33,” he added.

While announcing on-tap licencing norms for universal banks in August 2016, RBI disqualified business houses whose non-financial businesses accounted for more than 40 per cent or more in terms of total assets or gross income, from applying for a bank license.

RBI is known to be conservative when it comes to granting a bank license. In the last 15 years, only two entities were granted a universal bank license. The central bank’s decision to continue to disallow corporate houses in banking comes at a time when a bill will be tabled in the upcoming winter session of the Parliament’s that proposes privatisation of two public sector banks – seen as a significant milestone for the Indian banking sector in terms of pushing reforms.