Trend to allow corporate India to open banks dangerous: Dasgupta

The Yashwant Sinha-led Standing Committee on Finance has argued strongly against grant of banking licences to corporate houses. Stating that industrial houses may not be geared to achieve the national objectives of financial inclusion, it has recommended that banking and industry be kept separate.

In its draft on “Policy on New Licenses in the Banking Sector,’’ a copy of which is with The Hindu, the committee has said that banking being a highly leveraged business involving public money and public welfare, it is of the considered opinion that it will be more in the fitness of things to keep industry and banking separate.

“As of march 2013, out of 15630 existing private sector bank branches, only 2699 are located in rural areas i.e. to say only about 17 per cent of the total branches are in rural areas. Given such a background, the committee are apprehensive that industrial/business houses may not be geared to achieve the national objective of financial inclusion, priority sector lending etc,” it said.

Communist Party of India MP and member of the committee Gurudas Dasgupta termed the trend to allow corporate India to open banks dangerous. “They [corporate houses] will manipulate their own banks and invest in shell companies to launder money. They will produce false investment documents and take out money from the system. Private banks have not done well in India in the past also, so what is the hurry for this now?’’ he said.

The committee referred to the clause of new private banks having to come out with a business plan for financial inclusion of opening 25 per cent of their branches in unbanked rural centres to avoid over-concentration of their branches in metropolitan areas and cities that have adequate banking presence.

"When private sector banks are not able to have even 20 per cent of their branches in rural areas, the committee cannot understand as to how new banks will be persuaded to achieve the mandate of opening 25 per cent of their branches in rural areas. The committee would like Reserve Bank of India to have a mechanism of incentive/disincentive in place so that this mandate/stipulation could be strictly enforced and it does not remain only on paper, as is the case now. For every three branches in urban areas, there must be a branch in a rural area. Permission to open branches could be given in lots of four at a time which would enable RBI to properly enforce this norm,’’ it said.

The committee was of the view that RBI should promptly respond to those applications for banking licences that are not accepted and to intimate the reasons for the same to the applicant within a stipulated period. It urged RBI to execute the process of screening and evaluation of such applications in a well-defined and transparent manner without leaving any room for speculation or conjecture.