Rajan’s ‘mildly futuristic’ vision for banking sector

Couple of weeks are still left for Dr. Raghuram Rajan before he vacates his office, but he is making the best use of these few weeks by inculcating positive sentiments about the future of banking sector, especially of the public sector banks (PSBs). In a conference held in the financial capital, Reserve Bank of India (RBI) governor Rajan decided to look beyond the stressed assets that are hurting the sector.

While addressing the topic of NPAs (non-performing assets) Rajan said, “We are monitoring the process.” He reiterated that RBI is happy with the improved recognition of NPAs by various banks and the way some banks are trying to handle these stressed assets. According to a report ‘Digital and beyond’, NPAs have been widely discussed theme in 2015-16. The report went on to highlight that medium-sized PSU banks were the hardest hit and they reported the highest increase in gross NPAs in FY 2016. Rajan stressed that it is time for the banking sector to look beyond the stressed assets “for the sake of the economy.” He was speaking at a banking conference organised by Federation of Indian Chambers of Commerce and Industry and the Indian Banks’ Association.

Terming the coming days as interesting, profitable and challenging for the financial sector, Rajan stated, “The level of competition is going to increase manifold, both for customers as well as for talent, transforming even the sleepiest areas in financial services.” He added, “Profitable because new technologies, information, and new techniques will open up vastly new business opportunities and customers. It can be challenging because competition and novelty constitute a particularly volatile mix in terms of risk.” He further added that innovation and competition can lead to volatile financial instability. “We (RBI) want to encourage competition and innovation at the same time care about sustaining stability.”

“We are trying to make mandates more understanding of technology. Commenting on ‘redefining branches’ of banks, Rajan said, “RBI is looking to come up with ways on what constitutes an adequate service that qualifies for a branch.” Thus, helping banks to invest time and money in ways that would enable them think beyond the existing brick and mortar model.

He also added that authorities such as the Reserve Bank of India and the government should reduce differences in regulatory treatment between public sector and private banks, as well as those between banks and other financial institutions.

Commenting about the decision-making process of PSBs,  he said that a variety of authorities –- Parliament, the Department of Financial Services, the Bank Board Bureau, the board of the bank, the vigilance authorities, and various regulators and supervisors including the RBI, monitor the performance of the public sector banks. He suggested that boards of PSBs should be allowed to take all major governance decisions freely without having multiple “constituencies to satisfy”.

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