Corporates' entry into the banking sector is seen as a credit negative for incumbents and corporate governance but can help create efficient banking.
Moody's has cited that there will be a conflict of interest, and given the poor track record of High nonperforming loans in the corporate segment, it will increase risks to the sector. But the move is seen as ‘credit positive’ for NBFCs as they would be allowed to accept deposits.
The S&P has noted that analysts are skeptical as the panel's recommendations may be tough to implement as bank failures and scandals have increased in recent times.
The analysis by Hindustan Times has noted that NBFCs are staring at failure due to the present crisis in the financial sector, and India does not have a comprehensive resolution mechanism for financial firms. Further, with the country's existing banking crisis, corporate entry into the sector can create other problems.
In its research report, Motilal Oswal has said corporates' entry would increase healthy competition, making the banking system more efficient, reducing intermediation cost, and ultimately increasing credit penetration in the system.