Bank ownership in hands of corporates not desirable: ex-SBI chairman Rajnish Kumar – The Economic Times

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Allowing corporates to own banks in the country is not desirable due to the likely risks of related party transactions, former State Bank of India (SBI) chairman Rajnish Kumar said.

Allowing corporates to own banks in the country is not desirable due to the likely risks of related party transactions, former State Bank of India (SBI) chairman Rajnish Kumar said. Kumar headed the country’s largest lender for three years (October 2017 to October 2020).

“To me, in a country like India, allowing corporate houses to own banks is fraught with great risks. I believe that the licence of bank or bank ownership in the hands of corporates is not a desirable thing to do.

“We should have rightly-owned and professionally managed banks,” he said at a webinar organised by the Centre for Financial Studies (CFS) of Bhavan’s SPJIMR.

He was discussing his recently released memoir ‘The Custodian of Trust’.

Last year, an Internal Working Group (IWG) of the Reserve Bank of India (RBI) had recommended allowing large corporates/industrial houses as promoters of banks.

It, however, said large corporates should be allowed to own banks only after necessary amendments to the Banking Regulations Act, 1949 to prevent connected lending and exposures between the banks and other financial and non-financial group entities.

Kumar said even at a time even when corporates are not owning banks, there have been many instances of connected or related party transactions and over-exposures.

Asked whether industry houses which own NBFCs should be allowed to become full-fledged banks, he said one reason in favour of these entities is that they are well governed, but the issues around related party transactions still remain.

Speaking on the issue of ‘telephone banking’, Kumar said he had never faced a situation where a senior minister had called him for any loan approval.

“In three years (as SBI chairman), I did not face a situation where finance minister would call and ask me to do something that I had to say no to,” Kumar said.

On the power sector, Kumar said the country brought public-private partnerships into the transmission segment, but the distribution sector, by and large, is still state-run.

He said there are huge issues around ATC (aggregate technical and commercial) losses, and the power industry ends up paying more due to power theft and subsidisation.

“We are in such a complex situation that we are unable to unravel this puzzle. There is a big mess around the pricing of the power and unless we are able to fix them, which is not easy, the power sector will never become healthy,” he noted.

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