RBI's latest proposal to let corporates in banking hasn't gone down all too well with many of the seasoned veterans in the sector.
A Proposal of Implications
The proposal allows corporates to float banks, permit promoters to hold on to higher stakes, and grant approval to allow large NBFCs to convert into banks.
Many leading names of the banking sector namely, Former Reserve Bank of India's (RBI) governor Raghuram Rajan and deputy governor Viral Acharya believe giving corporates the green signal to banking would be a bad idea.
The biggest question the two banking experts raised was, "How can the bank make good loans when it is owned by the borrower?"
A Blunder in the making?
They pointed out how giving the reins to corporates will make it folds easier for industrial houses to seek financing. Such a move would also benefit the banks which already hold large initial capital at its whim thus gaining an undue advantage.
The two also said that many technical proposals by the RBI are worth adopting but it's main recommendation of allowing corporates into the world of banking is best left on the shelf.
Given India's weak corporate governance (think Nirav Modi & Vijay Malliya) welcoming corporate into the world of banking would very much backfire.
Bottom Line: What is it lately with India sucking up to the corporates? The way its going, PSBs will soon join airports on the privatized list.