The Reserve Bank of India (RBI) governor sounded a warning on Tuesday that much care needs to be taken over the rules before industrial houses are allowed to enter the industry—a proposed opening up of the sector that came as an unexpected announcement in the 2010 budget speech.
Key to governor D. Subbarao’s concerns is the plugging of loopholes on so-called “self-dealing”—making sure that those who run the banks don’t misuse funds. Central to this has been the debate over allowing large corporate houses to set up banks and the reluctance in some quarters to allow this.
The central bank will soon announce draft rules for the new entrants. For the government, this will mark its effort to ensure financial inclusion. In contrast, RBI had sought consolidation of the industry right up to the time the budget announcement was made.