There is a need to privatize select public sector banks, reduce the role of Department of Financial Services: Raghuram Rajan

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Raghuram Rajan
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New Delhi: Former Reserve Bank Governor Raghuram Rajan on Monday said that to improve the functioning of banks and to accelerate growth in the sector, privatizing select public sector banks, creating ‘bad banks’ to deal with stuck debts, and reduced the role of Financial Services Department Suggested to do.

Rajan and former Deputy Governor of Reserve Bank Viral Acharya said in a document titled ‘Indian Banks: A Time to Reform’ that reforms are necessary to ensure growth in banks.

Raghuram Rajan

It states, “The privatization of select public sector banks can be done under a carefully designed strategy. It should bring in private investors who have financial expertise as well as technology capability. Given the conflict of interest, corporate houses should be kept away from buying a large stake. ”

The document states that the government has considerable powers to intervene in the debt of banks. Sometimes this power is used in loans for financial inclusion or infrastructure. Sometimes it is also used to protect or control industrialists.

It states, “It is necessary to reduce the role of the Financial Services Department under the Finance Department. This is necessary to give concrete signals to the bank’s board of directors and management of the commitment to not let them work independently and to meet costly social or political goals.

It said that similar to online platform for selling stressed loans, private asset management and national asset management bad bank should be encouraged. According to the letter, the public sector bad bank can function as a unit in terms of gross debt, formation of management team for stressed companies and sale and holding of stressed assets in areas like electricity till demand gets back on track. is. It suggested, “This may provide good value for stranded debts of PSBs.”

The letter also said that as a first step in some public sector banks, the ownership structure could be changed. Under this, the government can reduce its shareholding below 50 per cent and distance itself from the operations of banks and the functioning can be improved over time.

Accordingly, “In addition to regulatory and market reforms, we propose changes in operations and ownership, especially in public sector banks. This may be an opportunity given the current enormous pressure on the finances of the government which has the scope for these reforms…. ”

In the case of dealing with non-performing assets ie debt, the document states that restructuring arrangements can be prepared outside the court. Under this, the issue can be resolved through dialogue between the stressed company and the lenders in a time bound manner. If the negotiations are unsuccessful, it can be referred to the National Company Law Tribunal (NCLT).

It has been said in the context of bank license rules that it should always be accessible. That is, the door should be open at all times with the bank license It states, “In the case of bank licenses, there should always be a system of accessibility… It is necessary for better units to enter and to create a dynamic bank system.”

Particularly better performing small lending institutions (micro finance institutions) should be allowed for small finance banks. Similarly, small finance banks that do better work should be given universal bank status. ” In contrast, universal banks that are not doing well can be brought back to the status of small finance banks. It also emphasizes the need to appoint people from other organizations for the same post and role while keeping the talent available to public sector banks.

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