Public sector banks might perform better if they are freed from some of the constraints they operate under but such freedom typically requires distance from the government, says former Reserve Bank of India governor Raghuram Rajan.
He is also of the view that there is no guarantee that privatisation will be a panacea. Much of the discussion on privatisation, he says, seems to make assumptions based on ideological positions.
"Certainly, if public sector banks are freed from some of the constraints they operate under (such as paying above the private sector for low-skilled jobs and paying below the private sector for senior management positions, having to respond to government diktats on strategy or mandates, or operating under the threat of CVC/CBI scrutiny) they might perform far better," he says.
However, Rajan feels that such freedom typically requires distance from the government. "So long as they are majority-owned by the government, they may not get that distance."
"Agriculture needs serious attention, but not through loan waivers. An all-party agreement to this effect would be in the nation's interest."
Rajan also feels that the banking system is overburdened with non-performing loans. "This means that they find it difficult to grow their new lending to industry, and growth suffers."
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