Raghuram Rajan questions government's plan to add public sector banks

Published: Wilson Clark

On: Sep 2017

Reserve Bank of India’s past governor Raghuram G Rajan has asked government's move to add public sector banks. While saying merging is not unnecessary, Rajan worried the government should be clear what need would it solve.

In an interview, Rajan said bank adds would be a crucial process. "Merging itself needs a whole lot of time and work by bank CEOs as well as bank managers all over the system. You have to add IT systems, you have to add traditional you have to add HR systems etc that includes a wonderful amount of work," he said.

He said the truth that banks were already weak would make addition even tougher. "You have description how it is going to be simple to do that. Why this is going to be easy and not just another disturbance which makes weak the total entity," he said.

The government is eager to decrease the number of PSU banks from 21 to 15 via merging so that they get economies of scale. Finance minister Arun Jaitley had said that the aim of the adder is to create strongest banks. 9 banks noted losses of Rs 18,066 crore in FY 2016-17 and nearby 6 banks are facing limitation on spreading banking works. Even among the holding banks, scrap benefits of 2 banks are close enough to the narrow activate to grand limits. Post -supplies, PNB’s bad loans is 7.8 percent of entire loans, while Canara Bank’s net bad loans is 6.3 percent as on March 2017. Banks too have spoken worries on weakness to the government.

As top nerve of famous state run banks like PNBBSE -3.27 percent, Canara Bank as well as Bank of Baroda. The banks which are exactly fixed as getting banks have set sure pre-situation to acquire smaller banks. A key situation for taking on examining banks is that the point bank must be making benefit. The getting banks have also asked capital from the government, even if the end point bank is well capitalized.

Rajan also asked the leading role of government in adders. "Are all these strategy going to be fixing by the North block? If so, if they are all going to be fixing by the North Block. Thus is not it going to inspire similarity in the banks which means we have not actually turned to the Gyan Sangam need that we need to have some separation? If North Block fixes then where is the separation ?" he asked.