Jury remains to be out: RBI Deputy Governor M Rajeshwar Rao on entry of huge biz teams in banking

“The jury is still out” on the problem of permitting massive corporates into the banking house, says M Rajeshwar Rao, Deputy Governor, Reserve Bank of India (RBI).
“Given that banking is a highly leveraged business dealing with public money, it makes sense to keep industry/business and banking separate,” Rao mentioned. This separation is anticipated to keep away from spillover dangers, the place bother wherever within the group entity might end in transferring dangers on to the depositors, main in flip to claims on deposit insurance coverage with subsequent ripple results cascading throughout the largely interconnected monetary programs, creating considerations round monetary stability, he mentioned on the Mint Annual Conclave.
“These issues have been flagged by the IWG (Internal Working Group) also and therefore, it is necessary that we closely examine the related matters before thinking of permitting large industrial houses or NBFCs owned by such houses to set up any new bank.”
On the IWG has recommending that the cap on promoters’ holding in future be raised to 26 per cent (from present 15 per cent), Rao mentioned, “we have agreed with the views of the IWG which have tried to strike a balance between the challenges posed by concentration of ownership on the one hand and diffusion of ownership on the other.”