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17Th Aug 2016
Outgoing Reserve Bank of India (RBI)
Governor Raghuram Rajan on Tuesday suggested empowering of boards of state-run
banks while making the case for a major reduction in government and regulatory
oversight, including by the RBI itself.
"Today, a variety of
authorities -- parliament, the Department of Financial Services, the Bank Board
Bureau, the board of the bank, the vigilance authorities, and of course various
regulators and supervisors, including the RBI -- monitor the performance of the
public sector banks," Rajan said in his address here at the FICCI-IBA
Annual Global Banking Conference.
"With so many overlapping
constituencies to satisfy, it is a wonder that bank management has time to
devote to the management of the bank," he said.
Proposing withdrawal of RBI nominees
from the boards of public sector banks, Rajan stressed the need to reduce the
overlaps between the jurisdictions of the authorities, while specifying
"clear triggers or situations" where one authority's oversight is
invoked.
He said agencies like the
Comptroller and Auditor General (CAG) and Central Vigilance Commission (CVC)
should only get involved in extraordinary situations where there is evidence of
malfeasance, and not when legitimate business judgment has gone wrong.
"It is important that bank
boards be freed to determine their strategies. Too much coaching by central
authorities will lead to a sameness in public sector banks," the Governor
said.
"Over time, RBI should also
empower boards more, for instance, offering broad guidelines on compensation to
boards but not requiring every top compensation package be approved," he
said.
"Though the most pressing task
for public sector banks is to clean up their balance sheets, a process which is
well underway, a parallel task is to improve their governance and
management."
The Total Investment & Insurance Solutions
"Over time, as the bank boards
are professionalised, executive appointment decisions should devolve from the
Bank Board Bureau (BBB) to the boards themselves, while the BBB, as it
transforms into the Bank Investment Company (BIC), which is the custodian for
the government's stake in banks, should focus only on appointing directors to
represent the government stake on the bank boards," he added. The Total Investment
& Insurance Solutions
Rajan, whose tenure ends in early
September, also voiced concern over state-run banks shunning project loans,
saying they should tap their large low-cost deposits from "casa" or
current account saving accounts deposits to finance infrastructure projects.
He said that since the crisis in the
infrastructure space, banks are shunning project loans and are aggressively
targeting retail borrowers. The Total Investment & Insurance
Solutions
"There are inputs to making
profitable project loans such as the availability of casa deposits that will be
accrued to the banks that build out their IT to access and serve the broader
saver cheaply and effectively," Rajan said.The Total Investment
& Insurance Solutions
