Keep industry and banking separate, Parliamentary panel tells RBI

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SummaryParliamentary panel suggests RBI should refrain from giving banking licences to corporates.

A Parliamentary panel on Monday suggested that the RBI should refrain from giving licences to corporates as the banking business is highly leveraged and involves public money.

Headed by senior BJP leader Yashwant Sinha, the Standing Committee on Finance also asked RBI to review the guidelines on ‘licensing of new banks in the private sector’ issued on February 22.

“Banking being a highly leveraged business involving public money and public welfare, the Committee are of the considered opinion that it will be more in the fitness of things to keep industry and banking separate. “The Committee, therefore desire the government/Reserve Bank of India to review the licencing guidelines accordingly,” the report tabled in Parliament said.

About two dozen institutions, including corporate houses, are in the fray to obtain bank licenses, which the RBI proposes to grant in the first quarter of 2014. The committee has expressed apprehension that management of private banks may deploy their funds to extend undue favour to own industrial owners, as it was noticed in the pre-nationalised era.

“The committee is apprehensive industrial/ business houses may not be geared to achieve the national objectives of financial inclusion, priority sector lending,” the report said.

The 32-member panel said that ‘fit and proper’ criteria to be used to grant licences “is too ambiguous” and too much scope has been left for subjective discretion of RBI.

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