Industrial houses should not have access to household savings through their own banks
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Most often, reports prepared by the RBI’s internal working groups barely (मुश्किल से; by the smallest amount; only just) draw much attention beyond the relevant circles in the banking and financial services industries and rarely ever evoke (आह्वान करना; to make someone remember something or feel an emotion) protest. But the strong reactions to an internal panel’s report on November 20, almost a full month since the group of central bank officials had submitted their recommendations on October 26, come as no surprise.
The panel, which was tasked with reviewing ownership norms (मानदंड; an accepted standard or a way of being or doing things that most people agree with) and corporate structure for private sector banks, has made worthwhile (सार्थक/लाभप्रद; useful, important) suggestions including ways to harmonise (एक समान करना/सामंजस्य; to make systems or laws the same in different companies, countries, etc. so that they can work together more easily) licensing norms for all banks including older legacy (विरासत; something that is a part of your history or what you receive after a person’s death) lenders and newer entrants (प्रवेशी/प्रतियोगी; a person who becomes a member of a group or organization).
While the panel’s appointment in June — at a time when the country was in the throes (अत्यन्त पीड़ा या कष्ट; difficulties or painful) of coping with the severe (गंभीर; very serious) economic fallout of the COVID19 lockdown — got little attention, its suggestion that corporate or industrial houses be allowed to promote banks has triggered (प्रेरित/शुरू करना; to cause something to start) widespread concern (व्यापक चिंता; worry about something happening in many places or among many people).And among those with reservations are at least three former senior central bankers and a global credit rating agency. Most intriguing (दिलचस्प; fascinating; to interest someone a lot, especially by being strange or mysterious) is that the panel, which consulted with experts ranging from former RBI officials to legal and finance professionals, clearly acknowledges that all but one of these outside experts were unequivocal (स्पष्ट; expressed in a clear and certain way) in their opinion that given the prevailing (प्रचलित; existing in a particular place or at a particular time) far-from-ideal corporate governance culture, corporates ought to be barred (वर्जित; to prevent something or to not allow something) from promoting banks.
The difficulty in ring-fencing (It is a practice of an organization to protect certain assests that can only be used for a particular purpose. It is usually legal, but there are limitations, such as maximum amounts that may be protected.) “the nonfinancial activities of the promoters with that of the bank”, was flagged (सूचित/सचेत करना; to warn or tell people about something that is important or is a problem) by these experts as the central concern, a fear that was echoed (दोहराना; to express what someone else has said) by S&P Global Ratings too.Former RBI Governor Raghuram Rajan and former Deputy Governor Viral Acharya — who was appointed by the Modi government after Mr. Rajan had left the central bank — in a joint article on LinkedIn have termed (करार देना; to describe it with a particular expression) the proposal a ‘bad idea’ and questioned its rationale (कारण/तर्क; the reasons for a particular set of thoughts or actions).
Acknowledging the RBI group’s caveats (चेतावनी; a warning to consider something before doing anything more) including its assertion (दावा; to say that something is certainly true) that corporates only be allowed as promoters after “necessary amendments to the Banking Regulation Act, 1949” are enacted (नियम बनाना; to put something into action or to make a law) to safeguard (सुरक्षा उपायों; laws/rules to protect someone or something from harm or destruction) against connected lending, the two economists have, however, pointed to the bailouts (खैरात; the act of helping a person or organization that is in difficulty, usually by giving or lending money) of Yes Bank and Lakshmi Vilas Bank as examples of the heightened risk posed by any move to loosen bank licensing norms.For all its regulatory powers and supervisory capabilities, the RBI failed to spot the build-up (निर्माण/गठन; an increase in the amount of something over a period of time) of troubled exposures (जोखिम; the state of having no protection from something harmful) at Yes Bank in time. The dangers posed to overall financial stability by letting industrial houses have access to relatively inexpensive capital in the form of household savings through banks, howsoever (हालांकि; in whatever way; despite this) legally regulated, are far too great to risk at the altar of liberalisation (उदारीकरण; allowing more freedom in laws, systems, or opinion) of ownership norms.
The RBI’s decision makers need to reject this suggestion outright (साफ़ साफ़/पूर्णत: completely or immediately) and place it where it belongs — the shelf.
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