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E-mail ID will not be published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

  • Sanskrit does not compare with German in the job market

    While there can be no argument that the importance of Sanskrit as an all-India language needs to be emphasised, particularly for the young generation

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

M S Swaminathan

Public good research in agriculture

Public good research in agriculture is designed to promote risk ...

Purnendu Ghosh

Why we must know the rules of the game

We like to believe that people are good and we ...

Shona Adhikari

Pop art is truly a feast for the eyes

The internationally reknowned Bruno Art Group’s presence in India had ...

INTERVIEWS

William D. Green

Chairman & CEO, Accenture