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Ideas Explained: Why recommendations of RBI Internal Working Group deserve debate

All models of bank ownership and governance have bugs and features, writes Manish Sabharwal.

By: Explained Desk | New Delhi | Updated: December 8, 2020 8:11:27 am
Banks, Corporates as banks, Banking competition, RBI on corporatisation of banks, Indian ExpressOutside the Reserve Bank of India. (Express Photo: Ganesh Shirsekar)

Responding to outright criticism of some of the recommendations of RBI’s Internal Working Group, Manish Sabharwal of Teamlease Services writes that “let’s have an open debate without cancelling the question”.

“If you only read the multiple, interesting and expert responses to RBI’s recent Internal Working Group report that targets higher banking competition, you could be forgiven for believing that Indian banking doesn’t need radical change, that most Indian entrepreneurs deserve their own episode in Netflix’s Bad Boys Billionaires, and that banks are only safe in the hands of employees or foreigners. Demonising Indian entrepreneurs not only excludes capital but encourages the possibility of Indian banking becoming like Wimbledon; it is played in England but Britishers rarely win. Shouldn’t building big Indian banks be an important strategic priority when five of the world’s top 10 banks are Chinese?” he asks, in an opinion column in The Indian Express.

Ending the poor productivity and wages of our MSMEs, self-employed, and farmers, needs rebooting Indian banking. The credit to GDP ratio has been stuck at 50 per cent for 10 years (most developed countries are 100 per cent), the number of scheduled commercial banks is lower than in 1947, net interest margins are among the highest in the world, and bad loans have been over Rs 10 lakh crore for a decade.

Over the last few decades, we fixed the big NBFC problem of “too-retail-to-fail”, but the last few years suggest a “too-wholesale-to-fail” problem that needs reviewing their regulatory arbitrage.

Weak competition for new banking business — deposits and loan concentration has increased by 70 per cent in the last five years — means that our version of “too-big-to-fail” is “too-few-to-fail”. And current banking problems can hardly be the fault of entrepreneurs currently not allowed.

Also read | Explained Ideas: What both the govt as well as the protesting farmers are failing to recognise

“India cannot accelerate its economic growth or counter China’ economic-growth driven militarisation with the current structure, management, ownership, governance, regulation, and supervision of banking,” he states. 📣 Follow Express Explained on Telegram

“Whatever is finally done — the recommendations are open for public comments — any debate must openly consider the painful status quo, the tyranny of technocracy, and the possibilities of entrepreneurship,” he states.

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