Former finance minister P Chidambaram has issued a blistering criticism of the Reserve Bank's proposal to allow corporates to enter the banking sector and set up banks, calling it a "dangerous agenda" that is "part of a deeper game plan to control the banking industry", making the RBI the "cat's paw". If this proposal is implemented, he said it would place a chunk of the nation's vast economic resources in the hands of the corporate sector.
"The total deposits in the banking industry is of the order of Rs 140 lakh crore. If business houses are allowed to own banks, they will, with a small equity investment, control very large amounts of the nation's financial resources," Mr Chidambaram said in a video that has been widely circulated on social media.
This, Mr Chidambaram said, was "another example of the Modi government pandering to the aggrandizement and acquisitive ambitions of the business houses of India".
"If the proposal goes through, it is no secret which politically connected business houses will get the first licences and increase their monopolistic power," he added.
Former Reserve Bank Governor Raghuram Rajan and former Deputy Governor Viral Acharya have strongly criticised the proposal made public last week.
"It will further exacerbate the concentration of economic (and political) power in certain business houses," they said in a LinkedIn note on Monday, referring to the proposal that was part of the proposed banking reforms.
Even though government needed more banks it was not wise to allow industrial houses into banking as the history of such inter-connected lending showed it could be disastrous, they said.
S&P Global Ratings has also criticised the idea, saying it was "fraught with risk".
"Dr Rajan and Dr Acharya have given cogent and convincing reasons why the idea is totally retrograde and why it will lead to concentration of economic and political power. It is shocking that such an idea should have been presented to the people as though it has the imprimatur of experts and the endorsement of the RBI," Mr Chidambaram said, explaining how across the world, especially developed economies, strict rules are followed to maintain neutrality of banks.
These include broad-based shareholding reflecting shareholder democracy; strict separation of ownership and management, where the ownership with shareholders and the management is in professional hands; and prohibition of connected lending, building a wall between lender and borrower, he said.
The Congress, he said, condemns the proposal and demands that the government declare that it has no intention of pursuing it.