Rajan says public sector banks need more freedom

Reserve Bank governor Raghuram Rajan on Tuesday said public sector banks 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," he observed.

"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 pointed out in his annual day lecture of the Competition Commission of India (CCI).

At the same time he 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.

"We need to examine all these ideas carefully, many of which will help give PSBs the flexibility to compete in the new environment," Rajan said.

Courtesy: Mail Today