Divest governance of PSBs from govt: Ex-RBI dy guv

Mumbai: Former Reserve Bank deputy governor N S Vishwanathan on Tuesday said there is a need to separate governance of state-run banks from the government and pitched for doing away with the nationalisation laws from which the executive derives its powers.

Privatisation is a bigger political decision and not an economic one alone, Vishwanathan said, adding that a bank holding company needs to be created first.

Vishwanathan, who was head of banking regulation, said the first need is to "divest" governance of the lenders from the government, and suggested doing away with the powers vested with the government under the bank nationalisation laws as a starter. He said having a holding company structure is essential.

"Because of the nationalisation Act giving so much power to the government, it is difficult to do governance. If we can divest governance from the government, half the job is done," he said, speaking at a seminar organised by SP Jain Institute of Management and Research.

The management institute's executive in residence Harsh Vardhan explained that public sector banks are entities under an Act of Parliament, while the private sector ones are governed by the Companies Act.

"RBI's writ does not cover them (PSBs). Their operational law is the Nationalisation Act, which excuses these banks from many things, he said, adding the government has to decide if these banks are commercial enterprises or government departments as the governance issues arise

from there.