FinMin should cut role in managing PSU banks: Rajan

The Bank Boards Bureau was set up to professionalise the state-run banks. NSEBSEAxis BankLoading data…

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    ChartsValuation & Peer ComparisonCommunity BuzzPEER COMPANIES Mumbai: The department of financial services under the finance ministry should withdraw from state run banks’ administration so that the Bank Boards Bureau (BBB) is effective, said former RBI governor Raghuram Rajan. “It seems to me the time or the indication we have to achieve that (independence of PSU banks) will be the day when you close down the department of financial services in the government of India whose job really is to monitor these PSU banks,“ Rajan said at the launch of his book ‘I Do What I Do’ in the financial capital. “I think it tends to impose sameness on these banks which we probably overtime need to find ways to get out of.“

    The Bank Boards Bureau was set up to professionalise the state-run banks. It was supposed to select chief executives, board members and suggest strategies for the banks to be run professionally. Nearly two years later it appears to be yet another chapter in the long history of failed attempts to free the government-owned lenders from the clutches of vested interests. Recently, one of the key members HN Sinor quit, but was persuaded to come back.

    A committee headed by PJ Nayak, a former managing director at Axis Bank, proposed that BBB should become a holding company for banks so that it becomes a professional one without interference from the political system.Most commentators have indicated that either BBB be given more teeth and allowed to deliver, or should be wound up.

    “The BBB that we have is not so clearly distinct in terms of distance from the government and to some extent perhaps needs more work in order to strengthen its autonomy and independence,“ Rajan said. “In the longer run, it seems to me that we need truly independent professional boards at the public sector banks which have the ability to appoint or fire CEOs. When we get there, we wo uld truly create the appropriate distance between the government and the PSU banks.“

    On about government meddling in the affair of the Reserve Bank of India and trying to exercise control over the regulator, Rajan said the institution influences the conduct of the Governor as an independent thinker as it was exhibited when bureaucrats who campaigned for more government role, changed colours once stepping into the RBI.

    “Institutions give a certain amount of backbone to the leaders,» said Rajan. “Often, people who are really pounding on the table for FinMin rights, when they move over to the Governorship, pound on the table for RBI rights. There are clear examples in our history about people who have switched 180 degrees. If you are pliant and subservient, you don’t get respect from your staff members. People develop backbone very quickly.“

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