Rajan, Acharya slam RBI proposal for corporate ownership of banks

24 Novembre, 2020, 08:43 | Auteur: Auguste Feret
  • Rajan, Acharya hit out at idea of corporates in banking, say borrowers shouldn’t own banks

Have we learnt something that allows us to override all the prior cautions on allowing industrial houses into banking? "We would argue no", they opined. "Indeed, to the contrary, it is even more important today to stick to the tried and tested limits on corporate involvement in banking", Rajan and Acharya's joint statement, released on Rajan's LinkedIn handle, read.

Giving licenses to industrial houses will concentrate economic powers to these corporates.

They pointed out that if industrial houses need financing, they can get it easily, no questions asked, if they have an in-house bank. "As a part of the structural reforms that we have witnessed in the sector over the last few years, new licencees are likely to leverage India's data dividend and help build mobile-first digital challenger banks". If they are owned by industrial houses, it can lead to bad lending, the duo reasoned. The history of such connected lending is invariably disastrous, they said, wondering how a bank can make good loans when it is owned by the borrower.

The two noted that even an independent regulator finds it hard to check poor lending. Rating agency S&P Global on Monday said it was sceptical of allowing corporate ownership in banks given India's weak corporate governance amid large corporate defaults over the past few years. "These norms have been relaxed recently", the paper states. They add that as the WGI has suggested, "it is always hard to discern the connections that make a borrowing entity part of an industrial house".

"Some favoured ones are expanding merrily, financing assets purchases with yet more borrowing, imposing greater risks on the system", they wrote.

According to Rajan and Acharya, the second reason to prohibit corporate entry into banking is that it will further exacerbate the concentration of economic (and political) power in certain business houses. "Moreover, highly indebted and politically connected business houses will have the greatest incentive and ability to push for licenses", they said. "That will increase the importance of money power yet more in our politics, and make us more likely to succumb to authoritarian cronyism", they said. Can the regulator not discriminate between "fit and proper" businesses and shady ones? "Whether these conditions will always prevail is debatable".

Both Rajan and Acharya felt that once the bank license is given, the licensee's temptation will be to misuse it because of self-lending opportunities. "The bailout costs to the exchequer could be significantly more when it comes to bank licenses to industrial houses, which will start out big". After all, committees are rarely set up out of the blue. "Is there some dramatic change in perception that it is responding to?"

Atletico edge past Barca to earn title boost as Real Madrid held
Pique was hurt during a collision with Angel Correa and was in distress as he departed. "We need everyone. La Liga games before Atletico coach Diego Simeone's first win over Barca.

1933 cases of COVID-19 over the weekend in B.C.
The majority of them were from the Fraser Health region and the rest were from Vancouver Coastal. There have been 17 new COVID-19 related deaths, for a total of 348 deaths in British Columbia.

Ole on Dean: He's not put a foot wrong
Manchester United manager Ole Gunnar Solskjaer has opened up on the reasons for Anthony Martial's poor start to the season. Every season is a challenge and you can not rest on your laurels at Man United. "We want Anthony to kick on".

The internal working group report itself points out that all but one of the experts it consulted were of the opinion "that large corporate/industrial houses should not be allowed to promote a bank", the authors stated.

India needs free, fair, non-hyphenated and questioning journalism even more as it faces multiple crises.

Rajan and Acharya said, "The rationales for not allowing industrial houses into banking are then primarily two".

"A second possibility is that an industrial house holding a payment bank license wants to transform into a bank. More importantly, why now, at a time when we are still trying to learn the lessons from failures like ILFS and Yes Bank?"

"In sum, numerous technical rationalisations proposed by the IWG are worth adopting, while its main recommendation - to allow Indian corporate houses into banking - is best left on the shelf", they opined.

It would be "penny wise pound foolish" to replace the poor governance under the present structure of these banks with a highly conflicted structure of ownership by industrial houses, they added. Regulations could not stop huge bad debt accumulation in banks.

"It is hard not to see these proposed amendments as a subtle way for the IWG to undercut a recommendation it may have little power over", Rajan and Acharya said, adding, while numerous technical points of the IWG recommendations are worth adopting, giving licenses to industrial houses is an idea "best left on the shelf".

Conseillé:



Populaire

Oil prices inch higher on encouraging news of Covid-19 vaccine
It will look at options to extend their deal on output cuts by at least three months from January. PVM analyst Stephen Brennock said the news was detaching sentiment from "gloomy fundamentals".

Kim Kardashian shares adorable picture with Hailey Bieber
Justin and Hailey's whirlwind relationship first began when they briefly dated from December 2015 into January of the next year. Bieber paid tribute to his spouse by sharing a series of photos of Baldwin on Instagram .

Vernon Kay planned surprise wedding vow renewal for wife Tess Daly
I'm A Celebrity .Get Me Out Of Here is airing every night on Virgin Media One and the full series so far of I'm A Celebrity . If we'd have met a little bit sooner it would have been with him'. "He was a production assistant at Andrew Lloyd Webber's".

Ibrahimovic zlatane le jeu FIFA !
Je ne suis pas au courant que je suis membre de la FIFPro et si je le suis, j'y ai été mis sans aucune connaissance réelle de ma part et de façon douteuse.

"A Frankenstein monster" - Pennsylvania judge rejects Donald Trump's election lawsuit
Attempts to thwart the certification of the election have failed in courts in Georgia, Michigan and Arizona. Biden has a margin of more than 81,000 votes in the state.

Coronavirus: 1 death in Republic, 9 new cases in Galway
The Taoiseach said Cabinet had not yet decided whether pubs and restaurants would be permitted to reopen fully ahead of Christmas. The total number of cases in the six counties has now surpassed the 50,000 mark while the death toll there stands at 936.

'Immense sadness' at funeral of black Brazilian killed by security guards
Speaking to reporters, Vice President Hamilton Mourão lamented the incident at Carrefour, but denied it reflected racism. The two guards, one of whom was an off-duty police officer, were arrested and are being investigated for homicide.

La vaccination sera obligatoire sur les vols internationaux — Coronavirus
Joyce a déclaré, lors de l'émission télévisée " A Current Affair ", que les vols internationaux ne reprendront que lorsqu'un vaccin sera disponible.

Pulisic joins Chelsea training ahead of Rennes trip
Chelsea forward Christian Pulisic has recovered from a hamstring injury and will be ready for Sunday's Premier League clash against leaders Tottenham Hotspur , said manager Frank Lampard , but will not travel to France for Tuesday's Champions match with Rennes .

Marquez Valdes-Scantling moves forward after death threats
It was his fumble that set up a Rodrigo Blankenship walk-off field goal four plays later to end the game. That didn't stop social media from blowing the fumble out of proportion.