Letters to the editor dated November 24, 2020

The report ‘Stout opposition to allowing corporates to promote banks’ (November 24) has quite rightly flagged the various effects of corporates entering the banking space. The most important issue here for the corporate sector is that running banks will require a complete set of rules of governance and operations. It remains an important fact that there are banks run by private entities now. The point to be noted is that like businesses run by private entities banks being run by corporates should be in complete compliance of the regulations stipulated by the government and there should be very close monitoring of the operations by government agencies. However, there should be no barriers for private participation in the banking sector.

Coimbatore

A robust banking system is de rigueur for a sustainable economic growth. Facing multiple crisis from mounting bad loans to a steady fall in their total share of advances and deposits over the decades, several public sector banks are now struggling to stay afloat and looking for recapitalisation from the Centre.

Under these circumstances, the RBI’s Internal Working Group had recommended NBFCs with a asset size of over ₹50,000 crore and above be allowed to convert to banks.

No doubt, it is a recommendation which merits implementation considering the imperative need for more banks in the country.

If the panel’s recommendations are accepted, many NBFCs such as Bajaj Finserv, Aditya Birla Capital and L&T Finance with their lending books larger than many banks would qualify to become banks. However, the RBI needs to adopt a cautious approach and ensure licences be issued selectively and preference given to those with a proven track record.

Converting established NBFCs is entirely different from allowing large industrial/corporate houses to set up banks.

Given the recent instances of houses using banks as captive fund pools for financing other group entities and related parties, concerted steps to strengthen banking regulatory mechanism has assumed greater significance now.

Sholavandan (TN)

With reference to the report ‘Raghuram Rajan, Viral Acharya slam RBI panel’s suggestion to allow corporates in banking’ (November 24), both the economists have played a big role in the evolution of RBI’s present modern and professional approach.

Since its inception, unlike the central banks elsewhere, the RBI has played a major role in institution-building in the financial sector in India.

The observers are justified in feeling that the government has been overexploiting the RBI and the Institutional System in the financial sector for implementing its political agenda. The criticism against the RBI’s latest initiative to bring a portion of the monetary resources presently outside the direct supervision of the regulatory authority needs to be viewed in the above perspective.

It is unfortunate that Raghuram Rajan and Acharya are pretending ignorance of the real ground realities in India which they had opportunity to perceive from close quarters.

Mumbai

With reference to the article ‘The LVB mess — a failure of regulation’, it has been once again proved that the RBI is none the wiser .

When various parameters for gauging the financial health of LVB bank such as Capital Adequacy ratio, Gross NPA, and deposit base were signalling to the looming threat, why did the RBI remain silent?

The learning from failures is to fix certain thresholds against various aforesaid parameters where the bank can automatically be deemed on the verge of collapse rather than waiting for the RBI to act.

There must be more accountability and transparency on the RBI’s part.

Why should depositors and investors bear the brunt of the RBI’s lapses?

Noida

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