Corporate Houses As Bankers? Not So Fast

In his first interview since taking charge, the new RBI Governor Sanjay Malhotra chose his words with characteristic restraint. Curiously, this interview was given to a mass English daily rather than a specialised business newspaper. Even a carefully worded observation—stating that banks must be managed by people with a sound track record, integrity, and expertise—has been enough to trigger a fresh wave of speculation across financial markets.

The reason is simple. In a country where regulatory nuances are scrutinised as policy tea leaves, the mere suggestion that India needs “more banks” has been read as a softening of the RBI’s long-held position on corporate ownership of banks.

Without naming names or announcing intent, the Governor’s statement has rekindled an old and unresolved debate. Should corporate houses be allowed to own and operate full-scale banks?

Proponents of the idea often reach for global examples to support their case. They point to Japan’s MUFG and Sumitomo, or the diversified keiretsu model, to argue that industrial groups can responsibly run deposit-taking institutions. But such comparisons miss context. These models are rooted in decades of coordinated state-industry relationships, underpinned by powerful regulatory institutions and strong cultural codes. They do not translate easily to India’s institutional landscape.

Closer to home, the Reserve Bank has always been cautious—deliberately so. From the Narasimham Committee in the 1990s to the Rajan Committee in 2008, and even in the 2020 Internal Working Group report, the risks of allowing corporate houses into banking have been flagged repeatedly. The concerns remain the same: connected lending, concentration of economic power, opacity in ownership structures, and the difficulty of effective supervision. These are lived realities.

To be clear, India does need more banks. But more importantly, it needs stronger and more stable banks. Scale, in itself, is not a virtue. It must emerge from consolidation, technology, capital adequacy, and inclusion—not by compromising prudence.

At the heart of this debate lies a deeper question: Why are so many large conglomerates eager to convert their NBFCs, fintechs, or payment banks into universal banks? The answer is not about serving underserved customers or expanding financial access. It is about accessing low-cost public deposits and enjoying the implicit sovereign guarantee that comes with a banking licence. That privilege is not free. It carries the weight of daily supervision, public accountability, and fiduciary responsibility.

Which brings us to an uncomfortable but necessary question for India Inc: if corporate promoters are unwilling to separate the roles of chairman and managing director in their own companies—despite years of pressure from SEBI and stakeholders—how will they ever submit to the intrusive regulatory rigour that banking demands? Can India afford to let ambition race ahead of governance?

Banking is not an extension of industrial ambition. It is a fundamentally different institution, built not on control and expansion, but on stewardship and trust. It demands around-the-clock transparency, hard discipline, and zero tolerance for influence-peddling. The RBI is not just another regulator. It is a constitutional custodian of financial stability. If the industrial mindset finds even board independence to be intrusive, what happens when RBI examiners sit across the table, demanding compliance, disclosure, and distance from the promoter’s other interests?

There is also a larger concern. If the entry of corporate houses into banking becomes a reality, will it stop at licensing? Or will it open the gates to a more worrying future—one where influence and lobbying become tools to bend regulatory norms, where credit is channelled not to the most productive sectors but to the most powerful entities?

It is a question that arises from the nature of the political economy.

When banks are controlled by business houses, capital allocation gets distorted. Competitors find themselves credit-starved, smaller businesses are squeezed out, and banks risk becoming captive treasuries of their parent empires. Over time, the entire architecture of market competition tilts. Credit becomes less about risk and more about relationships.

This is why global standards continue to hold the line. The Basel Committee, IMF, and OECD all underline the importance of insulating banking from industrial ownership. Even in Japan, where industrial groups operate banks, the system is buttressed by decades of oversight, dense legal frameworks, and cohesive state-industry ties that India simply does not have.

The issue goes even deeper than economics or regulation. It strikes at the moral legitimacy of the banking system. A bank is not a private asset. It is a public institution, backed by the sovereign, entrusted with household savings and business capital. That trust must be protected not only by rules, but by ethos. 

Mixing commerce with fiduciary finance undermines this trust. It weakens the neutral architecture that banks are meant to uphold. It risks turning a national asset into a commercial adjunct. The more that banking becomes a tool of influence, the less it remains a platform of inclusion.

And let us not forget the cultural divergence. Banking is built to manage risk. Industry is built to take it. One requires caution and patience. The other thrives on speed and control. These are not just different competencies—they are different value systems. No amount of compliance manuals can align them.

As the economist Walter Bagehot once wrote, “Adventure is the life of commerce, but caution is the life of banking.” India must choose wisely which life it entrusts to its banks.

Yes, India must build global-scale banks. But the way to do that is not by handing the keys of public finance to private empires. It is by encouraging responsible consolidation, fostering technology-driven models, attracting global capital, and enhancing governance within existing frameworks.

The role of the central bank, in all this, is not to chase size but to protect stability. Not to yield to pressure but to uphold principle. The RBI’s credibility has been built on decades of that discipline. It should not be compromised now.