Kamath defends RBI's strict actions on banks, NBFCs: 'Better to clamp down now'

Amid mixed opinion on whether the Reserve Bank of India was a bit too harsh by halting businesses of banks and non-banks to ensure that some undesirable practices are weeded out, veteran banker KV Kamath believes the central bank’s approach is possibly the best way to find a solution to the problem.

“Without going into specifics of what could have driven this (stringent regulatory action), let me say that a regulator certainly has to tighten where it sees that practices are not appropriate or are lax. It's better to clamp down now and make sure that the counterparty is course corrected before proceeding,” he affirmed.

To put things in context, starting with HDFC Bank’s ban on digital on boarding of customers through its app and issuance of new credit cards, to the cease and desist order issued last month on four non-banks, including Sachin Bansal’s Navi Finserv, 14 banks and non-banks have faced strict action from the regulator for non-compliance between December 2020 and October 2024. Movers and shakers of the industry such as Bajaj Finance and Paytm Payments Bank - which was barred from accepting deposits - too weren’t spared during this period.

Speaking exclusively to Moneycontrol on this matter, Kamath said that it is possibly the best way to ensure that the rest of the players in the industry take corrective action by themselves.

“The signalling impact of this to others who may be down that path will prevent problems growing in future,” he said. When asked if the action by the RBI can be seen as ‘too harsh’, he emphasised the regulator would have taken steps only when they realise that the situation on the ground warrants this sort of an action.

“I'm sure there would have been instances where penalties were imposed, but probably there was a need for something more than penalties, and that's why the action,” Kamath said,  responding to a question if monetary penalties could have been imposed rather than a ban. “My own assessment here is, and I do not know the cause, but there was something that needed to be fixed. In some instances, it was technology and if technology was needed to be fixed, fixing it takes time. The regulator wants to make sure that the technology is fixed before allowing it (the entity) to proceed further,” he added.