Key Points
The simple answer to that is it may give a rise to 'connected lending'..
While on the one hand, the RBI might be seeming to be somewhat more agreeable to allowing business conglomerates to own banking licences, it also feels it is important to, simultaneously, bolster regulations that would disallow conglomerate-owned banks from gaming the system," said Shivaji Thapliyal, Head of Research and Lead Analyst, Yes Securities...
While it may seem RBI is only making it difficult for influential people to twist loan conditions in their favor, the seriousness of Das & Co on connected lending is much intense for India as central bank keeps corporate houses away from owning banks in India...
Much like when Rajan and Acharya, back in 2020 after the internal working group's recommendation, had referred to the report and said "its most important recommendation, couched amidst a number of largely technical regulatory rationalisations, is a bombshell...it proposes to allow Indian corporate houses into banking..
The central bank has been reluctant to allow big business houses to set up banks after amending the Banking Regulation Act because of worries over governance, conflict of interest, misallocation of credit and concentration risks..
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