Raising the issue of controlling the public sector banks (PSBs) by the Reserve Bank of India and the central government, A Y.V. Reddy, former RBI governor, on Thursday said the problem of "dual control" has to be resolved.
He also said the problem was flagged by the Narasimham Committee 25 years back and the recommendations of the committee were not implemented.
"For public sector banks, the governance is controlled by the government and the regulation is done by the Reserve Bank of India (RBI). In private sector banks, both governance and financial regulation are with the RBI. There is a problem of dual control," he said at the third anniversary of Bandhan Bank.
Reddy said the banking sector regulator recently said it does not have all the powers to regulate the public sector lenders, while on the other hand, the government said it has enough powers.
"The Narasimham committee flagged the issue 25 years back and recommended that this dual control should end. This recommendation was not implemented and therefore, problem remains," Reddy said.
One option, to resolve the problem, is that the public sector banks should be converted into companies and then given licences to operate or otherwise, let them be entirely with the government.
Reddy also pointed out that the returns given to depositors by the banks as rate of interest are not decent due to high cost of intermediation though 95 per cent of the total investment is being financed by domestic savings.
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