According to Rajan Acharya, the proposal to let the big industrial houses into banking will have disastrous after-effects due to connected lending. The RBI has ignored the suggestions of financial experts after the consultation. All the expert bodies have advised that large corporations should not be allowed to turn into banks. It was believed to create a lot of issues. There are various ways in which these regulations can be circumvented on connected lending.
Rajan and Acharya had told that even after the banking license is given to the cooperates there will be a lot of unfair advantage on them. The large business houses already have the capital that they need. It is also noted that the more prominent business houses will get prioritized and they will get licenses faster. There will be a conflict due to money power.
There are many reasons why they should not be made into banks. The major reason is them already having an in house bank. They do not have any difficulty in getting finances. Another reason is due to the concentration of power that certain business houses have. There will also be chances for misuse of the funds due to self-lending opportunities
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