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Corporates divided over private banking licence

Mumbai, Jan 24 () : Corporates are divided over granting bank licence to group of companies with diverse interests.

Private banks like HDFC are going by IMF Nobel laureate Joseph Stiglitz, C Rangarajan, chairman of the Prime Minister’s Economic Advisory Council and economist Percy Mistry who are in favour of granting licence to corporates. The view is that the new banks would play around with depositors’ money to fund their other companies and thereby open the financial world to risk.

Even though RBI has sweeping powers to take action, the financial scams that are happening in India make it not ready to get into that sector. While another lobby feels that corporates are best suited to handle public finance.

Aditya Birla, Bajaj, Tata and Mahindra & Mahindra have expressed interest to apply for private banking licence. All these are group companies with interests in various sectors. RBI draft guidelines rule out any company with interest in real estate and this makes Tata ineligible for applying.

Industrialists like Bajaj say that in US and UK, private banks like Citi, Bank of America and Morgan were private banks run by professional mangers but due to their greediness the financial meltdown happened.

HDFC and others in the fray say that RBI should set guidelines that corporates should not lend money to their own group companies since this could be misused. Corporates say this could be incorporated in the guidelines while others argue that the RBI should put this in the guidelines but others argue that the apex bank should go by the track record of the applicant meaning that those coming in with cases of financial irregularity should be kept away.

Corporates like Bajaj point out that it once owned UCO Bank which was one of the best managed banks.

Majority of the corporates feel that private banks are the need of India to give level playing field to the banking sector with strict controls by RBI.