Batting for greater autonomy to state-run lenders, RBI governor Raghuram Rajan said on Monday the government should look at them as truly "independent entities" that take their own commercial decisions and not as an extended arm of the administration.
He also said that while it was fine for the government to involve banks to further the social sector agenda, it should ensure that such schemes should be financially feasible for the lenders.
"You cannot get a mandate and cannot fund it. After all, public sector banks also have private shareholders and are not any longer an extension of the government. They should be seen as independent entities," Rajan said, addressing bankers at an annual industry conference here.
"By all means, the public sector banks are there to undertake social actions when necessary but those mandates should be backed by financial gains," he said.
RBI is working with the government on issues regarding the governance at central banks, Rajan said, adding: "We are in constant dialogue with the government, we are discussing these issues on governance improvement, etc and let us see how much progress the government and the RBI make".
He further said that RBI has forwarded the recommendations of the PJ Nayak committee on corporate governance to the government for necessary action. The panel called for radical changes in the functioning of banks, including those within the top management and running of boards.
Some of its major suggestion are splitting the position of chairman and managing directors of the PSBs, giving longer fixed terms to the top management, paying them market prices as remunerations and having a transparent, merit-based system of appointments on the boards.
"We have to change the appointment process and expand the talent pool for management and boards of public sector banks, it has to be much more transparent and driven by people with strong capabilities. We have to strengthen board oversight and powers, boards have to be empowered and made more accountable," Rajan said.
The comments come amidst a slew of scandals plaguing PSBs involving top management. Last month, the CBI had arrested Syndicate Bank CMD S K Jain for allegedly receiving a bribe of Rs 50 lakh from Bhushan Steel to enhance the steel firm's credit limits.