The International Monetary Fund (IMF) has warned against grating bank licenses to the industrial houses in India.

The global financial body wrote in its new update on financial stability in India that the industrial houses must be permitted to own banks. Renowned economist Joseph Stiglitz had recently suggested against granting such licenses to industrial owners during his visit to the country.

The India government has been convinced by the industrial houses to ease the banking norms in the country to allow corporations to own banks in the country. However, recently observations from the global financial association will prompt a rethink in the government circles. Government is set to determine if the risk of allowing corporations to own banks is greater than its benefits. The IMF has said that the risks outweigh the benefits of such a move.

The IMF wrote, "The legal, operational, and regulatory framework for consolidated supervision of both bank led groups and financial conglomerates is still missing some important elements, and it would be prudent to first put in place and gain sufficient experience from implementing a comprehensive framework for this purpose before even considering whether to proceed with the entry of mixed groups and conglomerates."

The IMF noted that the risk of inter-group lending and contagion are high if the corporations are allowed to own banks in the country.