A cautionary tale for banking in Reliance Capital’s collapse

News:  Recently, the RBI said that it had superseded the board of a financier controlled by Anil Ambani, appointed an administrator, and would soon be sending the firm to the bankruptcy tribunal.

The Reliance Capital saga shows why RBI remains reluctant to allow big business groups into the banking sector, as recommended by its internal working group.

What lessons does the failure of Reliance Capital episode teaches us with respect to corporatisation of banks?

One, collapse of a bank would significantly affect savings and current account customers. Ultimately, it can cause a loss of trust in the Indian banking system, pushing them towards riskier assets like Bitcoin.

Two, the issue of connected lending. It will take far greater supervisory skills to stay on top of ‘connected lending’ between banks and the non-bank business interests of controlling shareholders, especially if they happen to be politically influential.

Source: This post is based on the article “A cautionary tale for banking in Reliance Capital’s collapse” published in Live mint on 2nd Dec 2021.

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