No banking license to business houses, RBI Governor Shaktikanta Das said - monitoring will be difficult; also gave the reason

RBI: RBI Governor Shaktikanta Das said in a program on Friday, that running a bank is different from other businesses. Experiences from around the world show that it will be very difficult to monitor regulate and prevent related party transactions. The risks involved are very high.

Sat, 20 Jul 2024 11:53 AM (IST)
No banking license to business houses, RBI Governor Shaktikanta Das said - monitoring will be difficult; also gave the reason
No banking license to business houses, RBI Governor Shaktikanta Das said - monitoring will be difficult; also gave the reason

RBI governor Shaktikanta Das said there are no plans to let business houses open banks. The approval will raise the risk of conflict of interest and related party transactions. Running a bank is different from other businesses, he said while speaking at a programme on Friday. Experiences from different parts of the world show it will be very tough to monitor, regulate and prevent related party transactions. The risks are very high. The RBI had declared many big business groups ineligible to license new banks about ten years back. But the same issue was reopened for discussion by an RBI working group in 2020.

Referring to the period before the nationalization of banks in the late 1960s, the governor said, at that time business houses were also involved in banking activities in India. However, now we do not need more banks to fulfill aspirations but we need resources to grow the economy.

Das said India needs strong and well-run banks. We think that with the help of technology, they will be able to mobilize savings and meet loan needs across the country.

Das said the growth rate is good in the current environment. Monetary policy should clearly focus on controlling inflation. Amid the debate over neutral rates, he said, theoretical and abstract concepts are based on a person's decision. These cannot determine policy in the real world.

  • On the impact on growth due to higher interest rates, the governor said, growth has been strong despite the current policy rate. We will achieve the target of a 7.2 percent growth rate in 2024-25.
  • The central bank is particularly paying attention to the inflation front of food items. Wholesale Price Index-based inflation is also being monitored.

Das said, during his six-year tenure, the relationship between the government and the RBI has been good. Due to this, the economy has improved rapidly after Covid-19. On the allegations made in the book written by his predecessor, he said, no one expects the RBI to become a 'cheerleader'. I have no such experience. Das's tenure ends in December this year.

Muskan Kumawat Journalist & Content Writer