Reserve Bank of India Governor D. Subbarao, on Friday, defended the central bank’s decision to make corporates eligible for bank licences, saying that responsible regulation involved being “pragmatic” and not “dogmatic”.
Elaborating on what he called responsible regulation, the RBI Governor said an important characteristic of such regulation was open-mindedness and the willingness to change regulations to suit the changing circumstances. In this context, he defended the RBI’s decision to make corporates eligible for bank licences, which was done after extensive debate, consultation and deliberation.
“The Bank took a pragmatic view, in response to the changed situation, and determined that allowing corporates into banking sector would be net positive,” he said. Dr. Subbarao was delivering the keynote address themed “Responsible innovation and regulation in the financial sector” at the Institute of Development and Research in Banking Technology (IDRBT) Technology Excellence Awards 2012-13 & the CEO Panel here on Friday.
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The argument against allowing bank licences to corporates centred around “misuse” of public deposits for private gain and that banking in hands of the corporates would lead to concentration of economic power and political influence. The bank, however, took the decision to leverage the proven entrepreneurial talent and management expertise. Coupled with this was the scope for bringing in vast pools of capital that would help in strengthening financial inter- mediation.