Chidambaram stridently opposes idea of corporate houses running banks

Former Finance Minister P Chidambaram on Tuesday joined former RBI Governor Raghuram Rajan and Deputy Governor Viral Acharya in “stoutly opposing” a proposal to allow corporates and business houses to establish banks.

Rajan and Acharya have questioned the timing of the proposal, apparently based on a report of an RBI Internal Working Group (IWG), that suggests opening up of bank licences to corporate firms, on several grounds including that it will exacerbate the concentration of economic power in certain business houses. They cited the YES Bank crisis as a limitation of the RBI to gather information on loans.

Chidambaram quoted their note to conclude that the government’s move to consider the proposal is “part of a deeper game plan to control the banking industry”.

“Undermining basic tenets”

Addressing a press conference, Chidambaram said the principles governing banking that include broad-based shareholding, strict separation of ownership and management entailing ownership with shareholders and management in professional hands and prohibition of connected lending; building a wall between lender and borrower will be undermined if corporates and business houses are allowed to set up banks.

“Bank funds belong to depositors who are the people of this country. As a proportion of total deposits, the equity of a bank is minuscule. The total deposits in the banking industry is of the order of ₹140 lakh crore. If business houses are allowed to own banks, they will, with a small equity investment, control very large amounts of the nation’s financial resources. This must not happen and the Congress will strive its utmost to ensure that this will not happen,” said Chidambaram.

“Monopolistic power”

He pointed out that the idea, when first mooted, was opposed by all, but one, experts who were consulted. He underlined that it will help politically connected business houses in further concentrating their “monopolistic power”.

“It is shocking that such an idea should have been presented to the people as though it has the imprimatur of experts and the endorsement of the RBI. Just as the RBI was the cat’s paw of the Government in the saga of demonetisation, the RBI is being used by the Government to push through its dangerous agenda. This is another example of the Modi Government pandering to the aggrandisement and acquisitive ambitions of the business houses of India. If the proposal goes through, it is no secret which politically connected business houses will get the first licences and increase their monopolistic power,” he said.

“The Congress party condemns the proposal and demands that the government, unequivocally and forthwith, declare that it has no intention of pursuing the proposal. We call upon all the people of India and all political parties and trade unions to join us in resolutely opposing the retrograde idea of allowing corporates and business houses to set up banks,” he added.