- Pros (Arguments in favor):
- Large corporates have deep pockets to fund India’s future growth.
- They can provide significant financial resources.
- Can help address the low bank balance sheet to GDP ratio.
- Can supplement bank credit to the private sector.
- Cons (Potential Risks):
- Conflict of Interest: Channeling depositors’ money to their own group companies.
- Financial Stability: Risks to the bank if non-bank entities in the group face trouble.
- Regulatory Challenge: Difficulty for RBI to trace and prevent interconnected lending ex-ante.
- Moral Hazard: Expectation of public safety net if the bank fails.
- Concentration of Power: Increases economic power in a few hands.
- The text suggests it is prudent to keep borrowers separate from lenders.
- If allowed, it should be only after strengthening supervisory mechanisms for large conglomerates.