Sachin Chaturvedi wears many hats. He is the director general of think tank RIS and is also on the RBI’s central board. He was also part of the internal working group (IWG) set up by the RBI to revisit bank licensing norms. In an interview with TOI, he explains the thinking behind the recommendations. Excerpts:
A lot of attention is currently focused on the entry of the corporate sector into banking. Did you expect this kind of a reaction?
The reactions are on two or three different planes. One is focusing on the entry of large corporate houses. There are quite a few reactions that are welcoming the new scope for capital infusion in the banking sector, they are welcoming the efforts on enriched regulatory architecture and they are also trying to bring out the fact that the report has not just covered the architecture for universal banks but also the mechanisms needed for differentiated banks like small finance banks and payments banks. There is a need for a mix of institutional architecture and governance models to deliver what is required.
A ex-RBI governor, two former CEAs and a former finance secretary are among those who are critical about the entry of corporate houses…
Entry of private banks will not happen for the first time with this report. This has been the case since 1993. The provisions and requirements of various rounds of licensing have not been uniform. They reflect regulatory preferences of those times. Harmonisation across those guidelines is important, particularly when there is a new confidence for a $5-trillion economy and a new buoyancy in the economy. After 1993, the efforts to strengthen and regulate the private sector banks were made in 2001 and later in 2013, when we talked about the NOFHC (Non-Operative Financial Holding firm) to support the banking structure. In 2016, we made an effort to further insulate it.
How do you safeguard corporate houses promoting a bank lending to its own group companies?
We have suggested revisiting the fit-and-proper criteria. We have said that financial conglomerates getting into banking should have a structure NOFHC to come through and that companies should be regulated through RBI guidelines and necessary legislative framework. Third, the other entities of the conglomerate should not be in a similar area of business. Fourth, there should be prior RBI approval for any transactions that have to take place in the same entity. Fifth, there are suggestions to ease the regulatory structure for NBFCs to become banks and for banks to have an exit option. For equity dilution, we have proposed structures where we do not disincentivise those who are venturing into setting up a bank. But once they are there accountability should not be compromised. So, the sixth suggestion is the timespan for dilution and capping of voting rights and listing requirement. Seventh is not just redefining fit and proper criteria but also defining the base capital.