RBI governor rules out bank licence for corporates

Mumbai: RBI governor Sanjay Malhotra said there is no proposal to allow corporates, either through NBFCs or directly, to obtain banking licences. “There is no proposal as of now to allow corporates, whether through NBFCs or as a individual company to get a banking license,” he said, citing “an inherent conflict of interest with a group actually dealing with the money of the depositors.”

On promoter shareholding in private banks, Malhotra said the 26% limit on voting rights is laid down under the Banking Regulation Act. “There is no proposal to review this 26% shareholding,” he said. The RBI supports “diversification of ownership so that there are checks and balances within the owners, which we feel is necessary.” He added that foreign banks may take up to 100%, subject to conditions. He was speaking during a fireside chat at an event in Mumbai.

The RBI has long opposed the entry of large corporate houses into banking, citing risks related to governance failures, connected lending, and excessive influence. Its stance draws on global norms and past episodes in India where similar conflicts contributed to bank failures.

The Govt has broadly supported the RBI’s cautious view, preferring to keep banking ownership dispersed and independent of industrial groups. Proposals from industry bodies to open up the sector have consistently failed to gain traction, with policymakers emphasizing regulatory prudence and financial stability.

Economists and commentators have consistently warned against allowing corporate-owned banks. They argue that such ownership structures increase the risk of crony capitalism and weaken credit discipline. Reports like the 2014 Nachiket Mor Committee and the 2020 internal working group discussed the idea, with the latter controversially recommending cautious entry for corporates. However, these suggestions faced immediate criticism from academics and the public, who said India’s regulatory framework may not be equipped to manage the risks involved.

The RBI’s insistence on limiting promoter voting rights to 26% reinforces its intent to keep control fragmented. While foreign banks may hold larger stakes, domestic owners face stricter caps to reduce concentration and ensure effective oversight. The approach reflects a broader aim of maintaining depositor confidence and system integrity.

Despite recurring calls for reform, neither the RBI nor the Govt has shown willingness to ease restrictions on corporate entry into banking. With the RBI reiterating its position, the door remains closed to business conglomerates seeking banking licences.