Former Reserve Bank governor Raghuram Rajan today said governance reforms at state-run lenders will get complete only with the shuttering of the Department of Financial Services (DFS).
DFS, which monitors state—run banks, has created “sameness” among them and governs them “without responsibility”, he said.
Rajan also expressed displeasure at the working of the Banks Board Bureau (BBB), and pitched for having banks run by independent boards and not the finance ministry.
“The time or indication that we have achieved that (reforms in state-run banks) will be the day we close down the department of financial services (DFS), whose job is to monitor these public sector banks,” Rajan said at the launch of his book here this Friday evening.
“The DFS tends to impose sameness on these banks, we should probably over time need to find ways to get out of,” the former governor said.
The BBB has “not so clearly distinguished in terms of distance from government and to some extent needs perhaps more work to strengthen its autonomy and independence”, he said.
The BBB has become just another “cog in the wheel”, he said.
“So long as public sector banks are primarily governed without a board having the final ability to change management and so on, if they are governed by the ministry, then it is dual governance and often governance without responsibility,” he said.
“I think ultimately we need to put the responsibility on the boards, hold it to account, pay them for the job that they are doing, and ensure PSBs are governed,” he said.
The Government can then exercise control “through its board members, but not through a separate governing structure outside the board,” Rajan concluded.