Bring PSBs, pvt banks on same page, says Rajan

Bring PSBs, pvt banks on same page, says Rajan

Banks subject to hiring mandates: RBI governor

Bring PSBs, pvt banks on same page, says Rajan
Differences in regulatory treatment between private and public sector banks need to be reduced, according to RBI Governor Raghuram Rajan. Speaking at the Ficci-IBA Annual Banking Conference, Rajan said that some of the mandates given to public sector banks help skew the competitive landscape.

“Banks in India have been subject to the grand bargain, whereby they get the benefits of raising low cost insured deposits, liquidity support and close regulation by the central bank in return for maintaining reserves with the central bank, holding government bonds to meet SLR requirements, and lending to the priority sector,” Rajan said. In addition, public sector banks are further subject to government mandates such as opening PMJDY accounts, or making MUDRA loans. They are also subject to hiring mandates, in particular the need to hire through open all-India exams rather than from specific campuses or from the local community, and to meet various government diversity mandates.

In part compensation, public sector banks do get more government deposits and business, and are backed by the full faith and credit of the government. While it is unclear whether the cost of the mandates outweigh the benefits, they do skew the competitive landscape, Rajan said.

Authorities like the central bank and the government should, over the medium term, reduce the differences in regulatory treatment between public sector banks and private sector banks, and more generally, between banks and other financial institutions, Rajan added.

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