PSU banks need to free themselves from govt influence: Rajan

Tags: News
Pitching for greater operational flexibility to public sector banks, Reserve Bank Governor Raghuram Rajan today said they can 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 the public purse. Competition will improve efficiency," he said.

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

Rajan said there are 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 eminently practicable suggestions have been made to reform PSBs, such as creating a holding company to hold government PSB shares, increasing the length of PSB CEO tenures, breaking up the position of Chairman and CEO and bringing more independent professionals on bank boards, among others.

"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.

He noted that in the past PSBs had the best talent. But today, past hiring freezes have decimated their middle management ranks, and private banks have also poached talented personnel from PSBs.

"PSBs need to be able to recruit laterally, while retaining the talent they have, but to do so they need to be able to promise employees responsibility as well as the freedom of action," he added.

Referring to financial inclusion, Rajan said the RBI will come out with new relaxations on business correspondents shortly.

Also, he said some of the entities that become payments banks may be very 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.

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

  • Subdued crude oil prices offer an excellent opportunity for India

    In Mid-June, when most of us probably first heard of the ISIS posing a serious threat to stability in West Asia, international crude oil price suddenl

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

Why UGC must focus on quality

In a vast country like India, where there are pressures ...

Rajgopal Nidamboor

The sum total of our conscious experience

All of us epitomise a multiplicity of conscious thoughts. This ...

Gautam Gupta

Don’t let success kill the essence of the concept

In 1999 when my mother started her own label, we ...

INTERVIEWS

William D. Green

Chairman & CEO, Accenture