RBI governor Raghuram Rajan has strongly suggested that nationalized banks should be distancing themselves from the government and it will be ideal to set up a a holding company for them as recommended by the P.J. Nayak committee. He said Rajan said RBI is working on new regulations that would provide flexibility to banks on priority sector lending. The flexibility would enable banks with surplus priority sector loans in any one segment to ‘sell’ that to another bank, which was short on its targets. However, he said that public sector banks need to distance themselves from government influence to become more competitive. He added that in the past, these banks had the best talent, but now, past hiring freezes have decimated their middle-management ranks and private banks have also poached talented personnel from these banks. Hence it is necessary for them to be able to recruit laterally and to do so they need to be able to promise employees responsibility as well as the freedom of action. Unfortunately, employee actions in public sector banks are constrained by government rules and second-guessed by vigilance authorities, even while pay is limited, he argued, stating it will be hard for public sector banks to compete for talent. He also pointed out that the Nayak Committee had made some viable recommendations to reform public sector banks, including creating a holding company to hold government shares in these banks, increasing the length of tenure of CEOs of these banks and breaking up the position of chairman and CEO. Rajan also mentioned that India Post could be given a ‘payments bank’ licence where it will open accounts but deploy money only in government bonds.
