• Recently, P.K Mohanty committee of RBI had recommended allowing large industrial houses and corporates as promoters of banks like:
• Cap on promoters stake in the long run (15 years) may be raised from the current level of 15% to 26% of the paid-up voting equity share capital of the bank.
• Currently, banking regulations make it mandatory for promoters of private sector banks to reduce their ownership to 40% within three years and to 15% in 15 years.
Objective was to:
• Ensure greater financial inclusion, Brings more capital to the banking sector.
• During the last five years, private banks have been able to raise an aggregate capital of Rs 1,15,328 crore from the market as compared to Rs 70,823 by PSBs.
• Bring management expertise, experience, and strategic direction to banking.
Issues with banking licences to big businesses:
• Corporate ownership of banks raises the risk of inter-group lending, diversion of funds, and reputational exposure.
• The issue is exacerbated owing to weak corporate governance in India.
• Further concentration of economic and political power in certain business houses.
Mains Paper 3: Economy
Prelims level: P.K Mohanty committee
Mains level: Issues with banking licences to big businesses