No plans to allow business houses to promote banks: RBI Governor Das

Governor Shaktikanta Das said on Friday (july 19) that the Reserve Bank currently has no plans to allow business houses to promote banks.

Allowing corporate houses to promote banks exposes one to conflict of interest risks and related-party transactions, Das said, speaking at an event organized by the Financial Express here.

"At this point, there is no thinking in that direction," Das said, replying to a specific query on whether there is any consideration to allow business houses.

Disqualified

The RBI had disqualified a long list of conglomerates from floating a lender in the last round of licensing around a decade ago.

The issue was revived again in 2020, with a Reserve Bank of India (RBI) working group supporting it, given the potential to get the capital for helping meet the country's growth aspirations.

Underlining that banks are different from other businesses, he said experience worldover has shown potential conflicts of interest and issues relating to related-party transactions, if business houses are allowed.

India also had business houses engaged in banking fray, Das said, speaking about the time before bank nationalization in the late 1960s.

'High risk'

"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.

He said, while the economy needs the resources to grow, we do not necessarily require more banks to achieve the aspirations.

"What India needs is not proliferation in the number of banks, India needs sound banks, healthy banks, well governed banks which we feel will be able to mobilize savings throughout the country through technology and meet the credit requirements," he said.

'Applications welcome'

Das said that licensing of universal banks has been made on tap and added that applications are welcome.

Das said that the private credit space is growing rapidly and emerging as an attractive investment avenue for those with high risk appetite at present, and added the RBI is monitoring developments there.

"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 said.

(With agency inputs)