Reduce weight of govt mandates on PSBs, boost their risk management: Rajan

The government should incentivise all banks to take up activities it thinks desirable, not impose it on a few, said Rajan

Former RBI Governor Raghuram Rajan Friday said there is need to reduce uncompensated government mandates imposed onpublic sector banks (PSBs).

“This is lazy government — if an action is worth doing, it should be paid out of budgetary resources. It also is against the interests of minority shareholders in PSBs,” he said in Delhi.

The government should incentivise all banks to take up activities it thinks desirable, not impose it on a few, especially as the privileges associated with a banking license diminish, he said.

Along these lines, requirements that banks mandatorily invest in government bonds (the SLR requirement) should continue to be reduced, substituting instead with the liquidity coverage ratios and net stable funding ratios set by Basel, he added.

He further said public sector banks still not adequately professionalised and there is a need to substantially improve risk management.