The Reserve Bank of India did not consider the applications of industrial houses for banking licences as they failed to meet the ‘fit and proper’ criteria set by the central bank, RBI deputy governor KC Chakrabarty told The Indian Express in an interview.
“If they are not fit and proper, how can they be allowed? They would have got the licence if they had met ‘fit and proper’ criteria. There is no change in RBI’s policy for allowing industrial houses to set up banks,” the outgoing deputy governor said when asked why licences were not issued to any of industrial houses in the recent exercise. Out of 25 applications that included most of the top industrial groups in the country, only two — IDFC and Bandhan — were selected by the RBI.
He said industrial houses should not be kept away from the banking sector. “If industrial houses are allowed to open mutual funds and insurance companies, why can’t they be allowed to enter the banking business? Anybody who is ‘fit and proper’ can be given a banking licence,” Chakrabarty said. Among the ‘fit and proper’ requirements, one key aspect is the RBI seeking feedback on applicant groups on any relevant aspects from other regulators, and enforcement and investigative agencies like Income Tax, CBI and Enforcement Directorate. Many of them apparently failed this test.
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Chakrabarty indicated that the central bank will come out with a discussion paper on differential banking. “The RBI will soon come out with a policy paper for allowing differential banks. We must have different types of banks,” he said.
“If it’s allowed everywhere in the world, it should be done here also,” he said. When pointed that some banks are opposing the concept of differential banking, he said, “If they are uncomfortable, they should not do the banking business. What the banks are objecting is … about certain types of banks they are not happy. Then their inefficiency will come to the fore. They will lose business. They have a vested interest,” he said. Chakrabarty’s five-year tenure will end on April 25, two months ahead of scheduled retirement.
He further said reforms, especially improvement in corporate governance norms, are necessary in the PSU banking sector. He said the Ganguly committee had clearly recommended splitting of chairman and MD posts in banks. Private banks have already implemented this proposal. “That’s why we are saying reforms are necessary. Corporate governance needs to improve. What’s good for public sector banks must be good for private sector banks. Regulation should be ownership neutral. That’s one reform that needs to be done,” Chakrabarty said.
The RBI had sent a letter to the government asking for separation of CMD post in PSU banks, but the government rejected the proposal. “The government, as the owner of PSU banks, can’t dictate to the regulator. The government has a sovereign say. If there’s a conflict between the government and regulation, then regulation must prevail,” he said.
“All our reforms don’t take place because existing players don’t want reforms. They don’t want new players to enter their area. Banking has to be done as per regulations. Regulators should decide what type of regulation is needed. In our country, if our bankers say what type of regulation is to be done… So long as they are in the banking business, they should listen to the regulator,” he said.