Dr. Y. V. Reddy, former governor of the Reserve Bank of India (Photographer: Namas Bhojani/Bloomberg News)

Former RBI Chief For Doing Away With Dual Control Of Public Sector Banks

Former RBI Governor YV Reddy today called for doing away with dual control of public sector banks by the centre and the Reserve Bank of India.

Reddy was speaking on the occasion of the third anniversary of Bandhan Bank in Kolkata. He said that the RBI at present doesn't have all the powers to regulate the public sector banks. The government counters, Reddy said, by saying that RBI has all the powers relating of these banks.

“The Narasimhan Committee flagged the issue 25 years ago and recommended that this dual control should end,” the former RBI governor said. According to Reddy, the Centre governs and the RBI regulates in the case of public-sector banks, while for private banks, the RBI does both.

“The answer lay in converting the PSBs into companies and then giving licences to operate,” he said.

Commenting on the rate of interest given to depositors by the banks, Reddy said that the returns are not “decent” due to high cost of intermediation, owing to the “inefficiency of the banking system”. “This cost of intermediation should come down.”

He also batted for reduced "pre-emption", saying that 20 percent of deposits in government securities should be lowered.

On non-performing assets, he said the problem started a long time ago, but was not recognised. “Consolidation of banks is not an answer to the issue.”

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