Sanjay Malhotra, the governor of the RBI, confirms that NBFCs can become banks but expresses worries about corporate ownership and emphasizes stringent regulatory oversight.

During a fireside chat at the FE BFSI Summit, RBI Governor Sanjay Malhotra spoke about the possibility of large non-banking financial companies (NBFCs) entering the banking sector. Malhotra clarified the RBI's open and cautious stance on the changing financial landscape.

Malhotra pointed out that although NBFCs can become universal banks or small finance banks (SFBs), there are strict requirements for eligibility. According to him, NBFCs have the potential to become universal banks or SFBs, but the requirements for corporations and NBFCs are similar.

Conflicts of interest and company ownership, particularly when the same firm engages in both financial and real sector activities, were raised by the governor, nevertheless. Even though some NBFCs have large sums of money, he warned that there will always be a conflict of interest if the same group engages in both financial and real-economy activities.

Malhotra clarified that there is no plan to grant bank licenses to corporate entities, whether or not they are NBFCs. Regarding bank promoter holdings, he restated the RBI's policy that initially permits up to 100% promoter holdings, which must be lowered to 26% within 15 years.

Malhotra emphasised that diversification of ownership is essential and that they do not want any one individual to have undue control over banks that handle depositors' money. They would not like to forbid any economic activity, he said, emphasizing the significance of not suppressing justifiable corporate ambitions. Depending on their risk tolerance, any economic player must engage in a variety of activities.