The Telegraph
Wednesday , May 21 , 2014
CIMA Gallary

Rajan for bank freedom

Raghuram Rajan in New Delhi on Tuesday. (PTI)

New Delhi, May 20 (PTI): Pitching for greater operational flexibility to public sector banks, Reserve Bank governor Raghuram Rajan today said they could become more competitive by distancing themselves from government influence.

“If public sector banks become competitive, and especially if they do so by distancing themselves from the influence of the government without sacrificing their ‘public’ character, they will be able to raise money much more easily from the markets.

“Indeed, the better performers will be able to raise more, unlike the current situation where the not so good performers have a greater call on public purse. Competition will improve efficiency,” he said.

The remarks came in his annual day lecture of the Competition Commission of India.

Rajan said there were well-managed public sector banks across the world and even in India today.

“So, privatisation is not necessary to improve the competitiveness of the public sector. But a change in governance, management and operational and compensation flexibility are almost surely needed in India to improve the functioning of most PSBs, as the P J Nayak Committee has just reiterated,” he added.

The governor said a number of practicable suggestions had been made to reform public sector banks (PSBs), such as creating a holding company to hold government PSB shares, increasing the length of CEO tenures, breaking up the position of chairman and CEO and bringing more independent professionals on bank boards.

“We need to examine all these ideas carefully, many of which will help give public sector banks the flexibility to compete in the new environment,” Rajan said.

On financial inclusion, Rajan said the RBI would come out with new relaxations on business correspondents shortly.

Also, he said some of the entities that became payments banks might be well suited to support or substitute commercial banks in reaching remote areas.

“In sum then, we can increase competition in the banking sector while, at the same time, strengthening banks by reducing the burden of obligations on them,” he said.