Ex-RBI Guv for doing away with dual control of PSBs by Centre, central bank

Former RBI Governor Y V Reddy on Thursday called for doing away with the dual control of public sector banks by the Centre and the central bank.

Reddy, speaking on the occasion of the third anniversary of Bandhan Bank in Kolkata, said at present, the RBI does not have all the powers to regulate the PSBs.

The government, however, counters by saying that RBI has all the powers relating to PSBs, he said.

"The Narasimhan Committee flagged the issue 25 years back 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 PSBs, while for private banks, the RBI does both.

"The answer lay in converting the PSBs into companies and then given licences to operate," he said, adding, it should be either government or the RBI, not both.

Commenting upon the rate of interest given to depositors by the banks, he said, "It is true 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 that 20 per cent of deposits in government securities should be lowered.

On NPAs, he said the problem started a long time ago, but was not recognised.

To a question, Reddy said consolidation of banks was not an answer to the NPA issue.