Need to cut govt mandates for PSBs: Raghuram Rajan

New Delhi, December 14

Pointing out that privatisation of public sector banks is not panacea for all ills, former RBI Governor Raghuram Rajan on Friday made a case for reduction of uncompensated mandates like lending targets and pushing government schemes through branches of state-owned lenders.

He also said there is a need to reduce the Statutory Liquidity Ratio and substituting this with the liquidity coverage ratios and net stable funding ratios set by Basel.

Last week, the RBI decided to reduce SLR, the portion of deposits required to be mandatorily invested in government bonds, by 0.25% every quarter beginning January 2018. The calibrated reduction in SLR will continue till it reaches 18% from the existing 19.5%.

The banking system is overburdened with NPAs and there is a need to adequately professionalise boards of PSBs, Rajan said adding the government should do away with board appointments to avoid unnecessary politicisation.

The former RBI governor also expressed concerns over uncompensated government mandates being imposed on PSBs for a long time.

“This is lazy government – if an action is worth doing, it should be paid for out of budgetary resources. It also is against the interests of minority shareholders in PSBs. Finally, it does not draw the private sector in to compete for such activities,” he said.

The government should incentivise all banks to take up activities it thinks desirable, not impose it on a few, especially as the privileges associated with a banking license diminish, Rajan added.

Noting that among the more dangerous mandates are lending targets and compulsory loan waivers, he said government-imposed credit targets are often achieved by abandoning appropriate due diligence and creating the environment for future NPAs.

He also emphasised that the government should keep its banks well capitalised. — PTI