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Prominent bank employee union opposes plan to give licences to corporates; says RBI group suggestions retrograde

The RBI working group, which submitted its proposals last week, also recommended increasing the promoter holding limit in private banks to 26 percent from 15 per cent currently and a cap of 15 per cent for non-promoter shareholders.

November 25, 2020 / 03:52 PM IST

Prominent bank employee unions have opposed the proposals by an RBI working group that include giving licences to corporate houses and conversion of big non-banking finance companies (NBFCs) to banks.

The working group, which submitted its proposals last week, also recommended increasing the promoter holding limit in private banks to 26 percent from 15 percent currently and a cap of 15 per cent for non-promoter shareholders.

“All these suggestions and recommendations are most retrograde and unwarranted in Indian conditions,” said C H Venkatachalam, General Secretary of All India Bank Employees Association (AIBEA), the largest body of bank employees in India.

“Our banks represent Rs 135 lakh crores of people’s money. RBI is supposed to be the repository of the people’s faith in the banking system but unfortunately, RBI itself is suggesting measures that will endanger the safety of people’s money in the Banks,” Venkatachalam said.

To be sure, these are only working group recommendations at this stage, not RBI guidelines. Based on the report, the RBI will come with final guidelines.

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“Can anyone forget the past when so many private banks owned and controlled by the Corporates and Big Business Houses of our country mismanaged the Banks and innocent people lost their precious savings ?,” asked the AIBEA in a letter.

Bank unions are striking work on 26 November to press their various demands.

Earlier, former RBI governor Raghuram Rajan, in a jointly written article with former deputy governor, Viral Acharya, said the RBI group’s proposal to give permits to corporates will be a bad idea. The authors also questioned the timing of the report.

Rajan and Acharya said, while the proposals are tempered with many caveats, these raise an important question. “Why now? Have we learnt something that allows us to override all the prior cautions on allowing industrial houses into banking?” the authors asked.

In the past, the RBI has been largely hesitant to let large businesses promote banks.

Rajan and Acharya question the urgency and timing of the Working Group proposals. “After all, committees are rarely set up out of the blue. Is there some dramatic change in perception that it is responding to?” the authors asked.

In an exclusive interview with Moneycontrol on November 24, Bandhan Bank’s managing director and CEO, Chandra Shekhar Ghosh said giving entry to corporates with proper regulatory checks is not a bad idea.

Also, NBFCs have both benefits and disadvantages in converting themselves to banks and each company has to take a call, Ghosh said.

Since the 90s, the RBI has given three sets of banking licenses. Bandhan is one of the two recipients of private bank licences in the last round (2014-15). The other is IDFC First Bank.

“As I said with the right set of regulations, this issue can be addressed. The three tier structure will help to ring-fence the banking company from the group. This will include a non-operative financial holding company, holding company and subsidiary structure,” Ghosh said.

The last time (2013-14) when the RBI invited applications for new private banks, a host of corporates including Tata Sons; the Aditya Birla Nuvo, part of the Aditya Birla conglomerate; L&T Finance Holdings, part of India's largest engineering conglomerate Larsen & Toubro; Reliance Capital; and INMACS Management Services Ltd, which provides management consultancy, corporate finance, audit, tax, and legal advisory services, had applied for permits.

Only Bandhan and IDFC got licences.

The RBI has issued bank licences in three rounds since liberalisation. In the first round in 1993-94, the RBI gave licences to 10 private sector banks, namely Global Trust Bank Ltd, ICICI Bank Ltd, HDFC Bank Ltd, UTI Bank Ltd (renamed Axis Bank Ltd), Bank of Punjab, IndusInd Bank Ltd, Centurion Bank Ltd, IDBI Bank Ltd, Times Bank, and Development Credit Bank Ltd. Some of these banks do not exist now as they were acquired by stronger banks.

In 2003-04, two more banks were given licences—Kotak Mahindra Bank Ltd and Yes Bank Ltd. In 2014 IDFC First Bank and Bandhan Bank were given the licence. Rajan and Acharya listed some of the potential reasons for not letting corporations enter banking.
Dinesh Unnikrishnan
first published: Nov 25, 2020 12:16 pm
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