PSU banks need to distance themselves from govt Influence: RBI

Batting for greater operational flexibility of public sector banks, Reserve Bank of India (RBI)’s governor, Raghuram Rajan highlighted that state run banks could become more competitive by distancing themselves from government influence, without sacrificing their public character. The governor further added that this would enable these state run banks to raise money easily from the markets, unlike the current situation where not so good performers have a greater hold on the public’s money. The remarks came in his annual day lecture of the Competition Commission of India (CCI). He further highlighted that there are well-managed public sector banks across the world and in the country even today, so privatization would not necessary improve the competitiveness of the public sector, but change in governance, management, and operational and compensation flexibility of state run banks definitely was the need of the hour. The RBI Governor pointed that a number of eminently practicable suggestions have been made to reform public sector banks (PSBs), such as creating a holding company to hold government PSB shares, increasing the length of PSB chief executive tenures, breaking up the position of chairman and CEO and bringing more independent professionals on bank boards, among others. But, underscored that these suggestions required evaluation since this would help give greater flexibility to public sector banks to compete in the new environment. Referring to financial inclusion, Rajan said the RBI will come out with new relaxations on business correspondents shortly and also added that some of the entities which could become payment banks may be very well suited to support or substitute commercial banks to tap remote areas.