‘Dangerous’: Chidambaram on RBI Proposal on Corporates in Banking

The RBI has proposed to allow corporate houses to enter the banking sector and set up banks.

File image of Congress leader P Chidambaram.

(Photo: PTI)

After Raghuram Rajan, former Finance Minister P Chidambaram has expressed his disapproval of the Reserve Bank of India’s proposal to allow large-scale corporates to enter the banking sector and set up banks, NDTV reported.

Suggesting that the implementation of this proposal would result in a concentration of nation’s wealth in the hands of a few corporates, he described the proposal as a “dangerous agenda” that is “part of a deeper game plan to control the banking industry.”

In a video that’s been circulated on social media, Chidambaram said, “The total deposits in the banking industry is of the order of Rs 140 lakh crore. If business houses are allowed to own banks, they will, with a small equity investment, control very large amounts of the nation's financial resources....another example of the Modi government pandering to the aggrandisement and acquisitive ambitions of the business houses of India.”

He also added that “it is no secret which politically connected business houses will get the first licences and increase their monopolistic power” if the proposal is administered.

Speaking for the importance of neutrality of banks, which is maintained even in developed economies, Chidambaram said “It is shocking that such an idea should have been presented to the people as though it has the imprimatur of experts and the endorsement of the RBI.”

Raghuram Rajan’s Critique

Previously, former RBI Governor Raghuram Rajan, along with former Deputy Governor Viral Acharya, also delivered a critique for the proposal through a post on LinkedIn. The post read, "The history of such connected lending is invariably disastrous - how can the bank make good loans when it is owned by the borrower?”

Calling it a “bad idea” they encouraged “sticking to the tried and tested limits on corporate involvement in banking”, especially in today’s time, while the nation continues to “learn from failures like IL&FS and Yes Bank.”

"It will further exacerbate the concentration of economic (and political) power in certain business houses” they added, noting that the banks can succumb to political pressure if they’re controlled by politically inclined business houses.

(With inputs from NDTV and IANS)