Why Corporates Must Be Kept Away from Banking Business

Narayanan Vaghul, the former ICICI Bank chairman who passed away recently, was a key figure in Indian banking and a strong opponent of corporate entry into the banking sector. Vaghul was firm in his belief that large corporates should never be allowed to open banks in India. Reflecting on India’s pre-nationalisation banking experience, Vaghul argued that allowing corporations into banking would be a grave mistake that the country must avoid. “People in banking circles used to say that things are not alright with banks owned by industrial houses. I don’t think this country will have a repetition of that. It will all be professional banking,” Vaghul remarked in a 2023 interview.

The RBI’s Concerns

Vaghul was not alone in his concerns. The Reserve Bank of India (RBI) has consistently taken a clear stance against corporate ownership of banks, fearing the risks associated with connected lending—where bank promoters use funds to support their own businesses or related entities. In 2021, despite recommendations from an internal working group, the RBI decided against allowing corporate entry into banking due to these risks.

A Visionary Banker

Narayanan Vaghul, who passed away at 88 after being admitted to Apollo Hospitals in Chennai following a fall at home, left behind a legacy that few in Indian banking can match. Known for his visionary approach and dedication to the profession, Vaghul was appointed the youngest head of a public sector bank when he became Chairman of the Bank of India at 45 in 1981. He joined ICICI Limited as Chairman and CEO in 1985 and served as the group head until 2009. His tenure at ICICI Bank spanned 24 years, during which he played a crucial role in transforming the institution into a full-fledged bank. Vaghul was awarded the Padma Bhushan in 2010 for his contributions to trade and industry.

Pioneering Contributions

Vaghul is widely recognised for pioneering the universal banking model in India, laying the foundation for a new era in the sector. He was instrumental in establishing ICICI Securities and setting up CRISIL, India’s first credit rating agency, where he served as Founder Chairman for nearly a decade. His efforts in developing best practices in credit rating have been foundational for the industry. Vaghul’s contributions earned him numerous accolades, including Business India’s Businessman of the Year in 1992, a Lifetime Achievement Award from the Economic Times in 2006, and honours from Ernst & Young and the Bombay Management Association.

Philanthropic Legacy

Beyond his professional achievements, Vaghul played a significant role in several philanthropic initiatives. He was actively involved in organisations like Pratham, GiveIndia, and the Azim Premji Foundation, which focus on education, health, and livelihood. His philanthropic work has had a lasting impact on many communities across India.

In summary, Narayanan Vaghul’s opposition to corporate entry into banking stemmed from a deep understanding of the risks involved, as evidenced by India’s historical banking challenges. His legacy as a visionary banker and his contributions to both the financial sector and philanthropy underscore the importance of maintaining professional integrity in banking, free from corporate influence.