Experts discuss RBI's recommendations on restructure banking in India

Reserve Bank of India's (RBI) working group has made recommendations on ownership of banks with regards to maximum promoter holding, collapsing of holding company structures and allowing more private players, especially larger non-banking financial companies (NBFCs) and corporate housing into banking.

While the proposal of collapsing holding company structures has been welcomed by all, ratings agency S&P Global has warned against the RBI panel's recommendation to issue bank licences to conglomerates. Similar views were expressed by former RBI governor Raghuram Rajan and former deputy governor Viral Acharya in a joint blog, who warned against NBFC's owned by corporates. G Padmanabhan, former ED at RBI and Geeta Chugh, Senior Director at S&P Global discussed the way forward.

"We do remain sceptical about awarding new licenses, about allowing corporate ownership in the banks," Chugh said.

"First concern is corporate governance in India is generally weak. Second concern is regarding conflict of interest, concentration of economic power. Third risk is the risk to financial stability," she added.

"In our view we do believe that at this point of time allowing corporates to have ownership in the banks has higher risk at this point of time," she said.

"It will be a very difficult decision because we are comfortable where we are and to open up – there will be more opposition rather than people who support this," Padmanabhan said.

"We need to accept the fact that the corporate governance in this country is ownership mutual. So there is so much divergence, so much of NPAs have happened, even when we have not given license to the corporate sector. So that is a reality that we must be accepting and we must be able to work with that," he added.

"Once the corporates are allowed into the NBFCs, it will be better for them to convert them into banks because the supervision is much tighter as far as the banks are concerned. So from that aspect, probably the thinking of the internal working group has been right in saying that they have given NBFC license, they have grown big, so far we have not had any problems, so let us try couple of them as a proof of concern and convert them into banks and see how it works," he suggested.