The CPI(M) on Thursday hit out at the Narendra Modi government over an internal report of the RBI suggesting giving banking licences to corporate houses, claiming it was a "dangerous proposal which will harm the financial system and put people's savings at risk". The Reserve Bank of India's internal working group (IWG) reviewing corporate structure of private sector banks suggested sweeping changes in bank ownership in its report, including allowing large corporate and industrial houses to own banks by amending the Banking Regulation Act, 1949.
"These recommendations actually indicate the intent of the Modi government to open the banking sector to big business houses. These are dangerous proposals which will harm the financial system and put people's savings at risk," the latest editorial of the party's mouthpiece People's Democracy said. "If these steps are taken, then the Ambanis and Adanis can directly apply to start banks and the NBFCs already run by corporates can be converted into banks. Existing NFBCs owned by Tatas, Aditya Birla group and Bajajs can become banks. Banks run by corporates and industrial houses will enable them to access depositors' savings and divert them to related or interconnected enterprises," it said.
Given the state of regulation in the financial sector, promoters of the banks can easily circumvent the guidelines and exploit loopholes to corner resources for their own non-financial business interests, the editorial claimed. It also alleged that banks run by corporate houses will invite further "moral hazard and total distortion" of the allocation of credit.
It will lead to the exclusion of farmers and small and medium industries from accessing credit, the party claimed while expressing concerns that the bigger companies belonging to the financial-industrial conglomerates will obtain loans on favoured terms. "One of the principal objectives of bank nationalisation of 1969 was to break the unholy alliance between big business houses and banks that seriously distorted the allocation of credit and excluded major sectors such as agriculture and small and medium industries and thereby depressed the rate of growth of the economy and proved to be the major obstacle for poverty eradication," it said.
Accusing the government of vigorously pursuing privatisation of the financial sector, the CPI(M) alleged that it it was working to "weaken the public sector banking through disinvestment and eventually privatisation of some of the public sector banks". "In the case of the Lakshmi Vilas Bank, which was failing, the RBI has permitted a foreign bank, DBS, to take it over. The time may come when some of the weaker public sector banks may be handed over to a private bank which is corporate-controlled. "The Modi government must not be allowed to destroy public sector banking by allowing corporates and industrial houses to own and run banks," it said.
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