Bank Boards Bureau Turned Into Another Cog In The Wheel, Says Rajan
Tha Bank Boards Bureau is left with merely sending suggestions, says Rajan.
It is essential for stakeholders like the regulator and the government to create a strong independent body which could ensure better governance of public sector banks, former Reserve Bank of India Governor Raghuram Rajan said.
Speaking at the launch of his book ‘I Do What I Do’ on Friday in Mumbai, Rajan talked about why the Bank Boards Bureau was set up and how it turned out to be another “cog in the wheel”.
The initial purpose of creating the BBB was to pass on the process of selecting public sector bank heads through an independent and professional process, according to the former central banker. Yet, the finance ministry continues to select bank chiefs and the BBB has turned into a body that merely sends suggestions to the government.
“It is important that we have a strong independent body to make these selections to eliminate any chance of political interference,” Rajan said.
The governance at bank boards and selection of their chiefs came into focus amid growing defaults and bad loans. The non-performing loans of Indian lenders have nearly doubled to Rs 8.3 lakh crore since the central bank, under Rajan, ordered an asset quality review in the second half of 2015
Cleaning up the banking system was the most important reform measure which was pending, the former central banker said. There is no other task more important for economic revival, he said.
‘Duty Of People In Key Positions To Speak Up’
Rajan also said that officials like RBI governors will suffer a tremendous loss of reputation and lose public trust if they continue to do the government’s bidding. It would be important for people in key positions to get up and say what they feel.
"It is your duty to speak up because you are the risk manager of the economy. Your judgement might be wrong and that is okay. But you must speak up to bring the economy to the right path," Rajan said.
For India to grow better, it would necessary to work on improving the life of the poor. Often, the poor are not able to participate in economic growth because they don't have the education or the health, he said. Malnutrition may even affect their mental capabilities, he said. “It would be necessary for the government to work on the healthcare and education of the poor, else all the economic reform would have been for nought.”
