Days after a Reserve Bank of India (RBI) panel recommended corporates’ entry into banking, two former RBI governors hit out at the idea, and termed the proposal to allow corporate houses to set up banks as a “bombshell”.
Questioning the timing of the proposal, former RBI governor Raghuram Rajan and ex-Deputy governor Viral Acharya in a joint paper criticised the idea, saying that it is more important to stick to the tried and tested limits on involvement of business houses in the banking sector.
They also said that the proposal is “best left on the shelf”.
“The history of… connected lending is invariably disastrous — how can the bank make good loans when it is owned by the borrower? Even an independent committed regulator, with all the information in the world, finds it difficult to be in every nook and corner of the financial system to stop poor lending,” the article reads.