Cut government mandates on PSBs, not just privatise: Raghuram

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

The banking system is overburdened with non-performing loans 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. “Much of the problem lies in PSBs but private sector banks like ICICI and Axis Bank, as well as some of the old private banks, have not been immune.  The difficulties in some private banks suggest that ‘simple’ solutions like privatising all public sector banks may be no panacea,” he said.

Rajan 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.