Apropos the report “Govt and RBI are not adversaries: Subbarao” (July 17), the RBI governor has rightly suggested that the government should refrain from micromanaging public sector banks. At the same time, one should also consider that in these times of economic turbulence, when any crisis in the banking sector could prove a disaster for the country’s economy, the government would prefer to keep a close watch on the sector’s performance. However, this does not call for interference in the day-to-day operations of public sector banks since that will only stymie their performance. Operational decisions can be left to individual banks, since there is sufficient competition in the market to enforce the necessary discipline.
The present situation, however, calls for the RBI to review individual/group credit exposures and prescribe ceiling norms for credit to major sectors, so as to avoid fallouts from concentration risk. The RBI or the government may step in with directives for those banks in which they notice a continued deterioration in key parameters such as asset quality, profitability and so on.
V Sridhar Kolkata
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