Joseph Stiglitz warns against giving banking licences to corporates in India

Joseph Stiglitz warns against giving banking licences to corporates in India

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Nobel laureate Joseph Stiglitz has cautioned against giving corporations the ability to own banking licences in India and said that doing so would mean undertaking significant risk. Stiglitz said that there also could be issues related to corporate conflict of interests if they start to own their own financial institutions.

Joseph was speaking at the 15th CD Deshmukh Memorial Lecture that was being organized by the Reserve Bank of India (RBI), where he said that conflict of interest in the financial sector is a major issue. The economist’s lecture was titled ‘A Revolution in Monetary Policy: Lessons in the Wake of the Global Financial Crisis’, where he iterated that when corporations start to take their depositor’s money they become part of a public responsibility.

There has always been a risk that promoters of banks could start lending funds to group entities in the process of promoting banks. As a result of this, the RBI has not allowed these entities to promote financial institutions.

The RBI has upheld the guidelines stated in the Banking Laws (Amendment) Bill 2011, so as to regulate the processing of new banking licences. The Indian Parliament has now approved new legislation on December 20, 2012, which allows for the RBI to have further control while dealing with banks. Interested companies would be able to apply for a banking licence after final guidelines are issued by the RBI.