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E-mail ID will not be published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

  • The current value of the rupee does not merit market intervention

    The rupee, losing 40 paise per month against the dollar since May, is expected to remain under pressure till the calendar runs out on December 31, bef

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

Tushar Gandhi

Sustainable model for rural sanitation

Prime minister Narendra Modi has promised to build a toilet ...

Zehra Naqvi

How smells evoke strong memories

Remember that time when a passing fragrance transported you to ...

Dharmendra Khandal

Indian zoos need a fresh approach

Recently, when a man jumped in a tiger trench of ...

INTERVIEWS

William D. Green

Chairman & CEO, Accenture