Governance of state-owned banks would improve only when the government fully distances itself from the banks, creates a transparent and professional process to appoint its directors on banks’ boards, former RBI Gov Rajan said,
New Delhi : Raghuram Rajan, former governor of the Reserve Bank of India, has called for closing the Department of Financial Services under the Ministry of Finance to limit the government’s interference in public sector banks. In his recently released book “I Do What I Do”, Rajan wrote that the governance of state-owned banks would improve only when the government fully distances itself from the banks, creates a transparent and professional process to appoint its directors on banks’ boards, and allows the boards autonomy and accountability in choosing senior management and their compensation. “Unless public sector banks are run like normal corporations, they will not be competitive in the medium term,” Rajan wrote in his book, adding that the banking functions of the Department of Financial Services, which oversees government-owned financial firms, should be taken over by the Banks Board Bureau.
Rajan’s speeches regularly stepped outside the sphere of central banking. One particular speech, titled “Tolerance and Respect for Economic Progress”, created a furore. In his book, Rajan wrote that he knew his speech would be misinterpreted by the “usual critics”. But he decided to look beyond them and address the graduating students of his alma mater, the Indian Institute of Technology, Delhi, on India’s tradition of tolerance and debate. As is now well known, Rajan was accused by many of complaining about intolerance in India, which he termed “hilarious”. “What mattered most to me, however, was a one-liner from one of my staunchest young critics, my teenage son,” Rajan wrote.
