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Vibrant Banking Linked to Clean Assets

Rajan wants existing banks to improve capabilities, Says entry of new banks of different kinds also help strengthen sector.

Published: 08th April 2016 04:24 AM  |   Last Updated: 08th April 2016 04:24 AM   |  A+A-

MUMBAI:  Reserve Bank of India Governor Raghuram Rajan on Thursday stressed the need to make country’s banking system more vibrant and to strengthen the markets, to help the banking sector, currently under pressure with high non-performing assets.

“We need to do a lot of things to make our banking sector more vibrant,” Rajan said during an interactive session with Singapore’s Deputy Prime Minister Tharman Shanmugaratnam at a CII event here. Rajan further added that the entry of a whole set of new banks of different kinds is going to contribute towards improvement of the sector.

Last year, RBI had given in-principle approval to 11 payment banks and 10 small finance banks. Some of these entities are looking at starting their operations later this year or early next year.

Vibr ant.jpgIn the first bi-monthly policy for the current fiscal announced earlier this week, RBI had said it will be looking at issuing more differentiated banking licences. “In addition to recently licensed differentiated banks such as payments banks and small finance banks, the Reserve Bank will explore the possibilities of licensing other differentiated banks such as custodian banks and banks concentrating on whole-sale and long-term financing,” it had said.

“Also,  improving the capabilities of the existing banks is extremely important and which is why the asset clean up is part of the answer,” he said.

Rajan has set March 2017 as the deadline for banks to clean up their balance sheets. On markets, he said there is a need to strengthen markets by allowing new instruments and new set of participants.

“We have a lot of new technology which allows us to do this and we have to make sure that we do it in a safe way,” the governor said. The RBI earlier eased Tier I capital regulations at a time when banks are grappling with bad loans and increased need for provisions, which in turn are weighing on capital levels.

Panama Papers: Rajan Sounds a word of Caution

Amid the furore over the ‘Panama Papers’ leak, which has named several Indians with alleged off-shore accounts, Rajan warned against the “dangerous” trend of questions being raised on the legitimacy of the ‘entrepreneurial wealth of self-made people’. “There is talk about whether entrepreneurial wealth is illegitimate, whether self-made people should have what they have and whether that’s a fair game. I think this is dangerous,”  he declared.

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