Red light against RBI's proposal to issue banking licenses to corporate groups

Mumbai, Ta. 23 November 2020, Monday

Standard & Poor's 'Global Rating' has warned against the Reserve Bank's proposal to issue bank licenses to corporate companies in India. This tone has come in view of the prevailing administrative weakness in the corporate world of the country and the large number of corporate defaults in the last few years.

After issuing banking licenses to non-financial companies, monitoring them will be a challenge for the Reserve Bank and will also put a strain on the RBI's oversight department. The health of the country's financial sector is currently poor, the agency said in a statement.

The agency also hopes that issuing licenses to sound non-banking finance companies will improve financial stability.

The proposal to bring uniformity in the licensing guidelines for each of the new and old banks will give new players the same level of functioning.

As per the RBI's proposal, the RBI has set the standard for issuing bank licenses only to NBFCs with well-managed and more than ten years of experience and assets of over Rs 50,000 crore.

The country's NBFCs have a number of strengths that will help them venture into the banking sector. Extensive customer level, distribution structure, risk management system and brand are the strengths of NBFCs.

Meanwhile, according to another report, former Reserve Bank Governor Raghuram Rajan and former Deputy Governor Viral Acharya have criticized the proposal to issue banking licenses to corporate houses and said that efforts should be made to reduce corporate involvement in our banking sector. A joint statement issued by the two leaders said how the bank's loans could be better if the borrower manages the bank himself.