Bank Licences to Corporates

The argument put forward by the Governor in favour of granting licences to Corporates is surprising in the sense that when actual decisions will be taken on this issue of Licences the Governor may not be in RBI as things stand today. No doubt Corporates having bank Licenses will enhance competition  but that will be unhealthy competition without any ethics or values. They may mobilise deposits by way of Financial inclusion and they may siphon off these funds resulting in financial exclusion. Further, Corporates will interfere in regulation and RBI will be virtually dictated by the Politicians and Corporate honchos. NPAs will increase and write off of loans to benefit the Corporates will become  a regular feature as happened in good old decades. Sick industries will increase asking for tax concessions and incentives of all kinds. The disadvantages will outweigh the advantages and again the masses will have to bear the brunt. Deposits will carry higher rate of interest for huge deposit categories and this will have to be subsidised by small deposit holders and small borrowers.  The exploitation tendencies continue to be prevalent among the large corporates and RBI will also become a party and silent spectator. The competition so highlighted by the Governor will turn out to be unhealthy  and RBI will become helpless. The soundness and healthy banking system so far built up very painstakingly and meticulously by the RBI will  be a given a go by and the risks the economy will have to face then will be beyond control and  easy  solution. The Governor perhaps wants to make the applicant Corporates happy on the eve of his expected departure from RBI and earn their good will  as all along he has been fighting with them  without yielding to the Corporates' market and Government  pressures to reduce the interest rates to contain retail inflation .  

Dr.T.V.Gopalakrishnan

(This comment is given in response to the article" Bank licences for companies will make sector competitive: RBI Governor Subbarao"  that appeared in Business Line dated 3/8/13)