Former Reserve Bank of India governor Raghuram Rajan on Friday called for revamping the boards of public sector banks, making them independent of the government and allowing them to select the chairman and chief executive officers (CEOs).
“We need truly independent professional board for public sector banks… which is independent of government, and professional, which have the ability to appoint CEOs,” Rajan said while launching his book “I do what I do” in Mumbai. “Ultimately what we want is better governed banks. I think ownership is less important than governance. We can have very poorly governed private banks. You can have well governed public sector banks. I think to bring good governance is to have independent professional boards that are held accountable,” Rajan said.
“How do you get better governance? Ultimately we need to put the responsibility on the boards. Of course, the government exercises its control through board members,” Rajan said. “Bank Board Bureau was set up to select the CEOs,” he said. However, the final decision on Chairman and CEOs are taken by the government and the board of the PSU bank has no power to appoint its own Chairman and CEO.
“So long as PSU banks are primarily governed by a board having the ability to change the management… the government via the ministry has dual governance without responsibility,” said Rajan who is now Professor of Finance at the University of Chicago Booth School of Business. “It seems to me… time or indication we have received that (it) will close down the Department of Financial services,” Rajan said.