Ranjan Shackles Government; Asks To Free PSU Banks!

By siliconindia | Thursday, 18 August 2016, 05:39 Hrs

BENGALURU: On Tuesday, recently out-gone RBI governor, Raghuram Rajan flagged areas where Government of India needs to take course of action when it comes to public sector banks. Rajan stated that many banks were unpaid as there remuneration is linked to that of a joint secretary in the government.

Undaunted by vituperative attacks from a member of the ruling party, the governor did not mince words while calling for more operational flexibility for public sector banks, which account for a third of banking in the country reports The Times Of India. Rajan called upon banks to change managements of stressed businesses while speaking about the bad debt clean-up issue. The banks were asked by the governor to bring in new owners or new managers which can uplift their position.

"It is important that bank boards be freed to determine their strategies. Too much coaching by central authorities will lead to sameness in public sector banks that successive Gyan Sangams have criticized," said Rajan, speaking at the FICCI-IBA banking conference on Tuesday. The Gyan Sangam has been an annual summit for PSU bankers aimed at bringing about reform in these institutions and making them more efficient. The concept of a BBB was an outcome of the Gyan Sangam summit.

Rajan said that despite the creation of a BBB to separate the Centre from these institutions, there are two ways the government still plays a role. "First, the final decision on appointments is taken by the Appointments Committee of the Cabinet (ACC). Second, appointments of non-official directors onto bank boards still lie outside the BBB. As the BBB gains experience, it would make sense to allow these decisions also to be taken by it."

He further added, "Authorities like the central bank and the government should, over the medium term, reduce the differences in regulatory treatment between public sector banks and private sector banks and, more generally, between banks and other financial institutions,"