The strong reactions to one of the latest report by an internal RBI panel doesn’t come as a surprise. Its suggestion that corporate or industrial houses should be allowed to promote banks was bound to trigger widespread concern. Most intriguing is that the panel, which consulted with experts ranging from former RBI officials to legal and finance professionals, clearly acknowledges that all but one of the outside experts were unequivocal in their opinion that given the prevailing far-from-ideal corporate governance culture, corporates ought to be barred from promoting banks. The difficulty in ring-fencing “the non-financial activities of the promoters with that of the bank”, was flagged by these experts as the central concern, a fear that was echoed by S&P Global Ratings too. Former RBI Governor Raghuram Rajan and former Deputy Governor Viral Acharya — who was appointed by the Modi government after Mr. Rajan had left the central bank — in a joint article on LinkedIn have termed the proposal a ‘bad idea’ and questioned its rationale. Acknowledging the RBI group’s caveats including its assertion that corporates only be allowed as promoters after “necessary amendments to the Banking Regulation Act, 1949” are enacted to safeguard against connected lending, the two economists have, however, pointed to the bailouts of Yes Bank and Lakshmi Vilas Bank as examples of the heightened risk posed by any move to loosen bank licensing norms. For all its regulatory powers and supervisory capabilities, the RBI failed to spot the build-up of troubled exposures at Yes Bank in time. The dangers posed to overall financial stability by letting industrial houses have access to relatively inexpensive capital in the form of household savings through banks, howsoever legally regulated, are far too great to risk at the altar of liberalisation of ownership norms.