Rajan warns state-run banks against year-end window-dressing

Tags: Rajan, Banking
The practice of "window dressing" by state-run banks towards the end of every financial year to meet performance objectives came in for sharp criticism from Governor Raghuram Rajan today, who said the Reserve Bank will not "bail out" lenders for their bad policies in future.

The year-end should not be a time for any spectacular changes in the banking system and must pass smoothly, Rajan told reporters after announcing the bi-monthly monetary policy, which left key policy rates unchanged.

"I don't think the RBI should be in the business of bailing out the banking system with infusion of liquidity when the banking system is creating its own problems," he said.

"What happens towards the end of the year is banks are trying to build a certain kind of balance sheet for a variety of reasons," he said, adding that some lenders reduce their risk-weighted assets to lower their capital requirements, while some state-run banks increase their assets in order to meet performance targets set by the government.

Rajan said such adjustments by banks affect various market segments and cited volatility in certificates of deposit starting even from February, which had to be curtailed by the Reserve Bank by improving long-term liquidity through long-term repo.

Rajan, who was scheduled to meet bankers after the press conference, said he will discuss the issue with the lenders with a focus on liquidity distortions towards the year end.

"(We should) not come to this pass where banks aren't lending to each other to maintain the kind of balance sheets they want. The year end should not be a time for anything special to happen, it should be smooth," he said.

Post new comment

E-mail ID will not be published
CAPTCHA
This question is for testing whether you are a human visitor and to prevent automated spam submissions.

EDITORIAL OF THE DAY

  • Sebi must not exempt listed SMEs from its mandatory disclosure norms

    The Securities and Exchange Board of India (Sebi) has amended clause 49 of the listing agreement, which lays down the obligation of companies toward t

FC NEWSLETTER

Stay informed on our latest news!

INTERVIEWS

GV Nageswara Rao

MD & CEO, IDBI Federal Life

Timothy Moe

Goldman Sachs

Chander Mohan Sethi

CMD, Reckitt Benckiser India

COLUMNIST

Arun Nigavekar

Skills education can boost industry

India’s manufacturing industry matters a great deal for the economic ...

Rajgopal Nidamboor

How synchronous empathy helps us

All of us are in an undulating ‘hypnotic’ state. A ...

Gautam Gupta

In fashion, why quality must exceed quantity

Every time there’s a fashion week in India, my friends, ...

INTERVIEWS

William D. Green

Chairman & CEO, Accenture