Former RBI governor Raghuram Rajan has said bank boards needed to be more independent and should be able to hire and fire chief executive officers (CEOs) without needing to take permission from the government.
“When we get there, we will have truly created the distance between the government and the public sector banks. One indication that we have achieved that will be the day we can close down the department of financial services,” which is continuing to introduce sameness in public sector banks, Rajan said at an event to launch his book I Do What I Do in Mumbai on Friday.
“Cleaning up the bank is single most important task today, bar none,” Rajan said.
He also said unlike a bureaucrat, who can hide behind rules, the RBI governor has a duty to warn in public, and say “no” to the government in private if an issue is not in the interest of the country. RBI governors should be protected the same way judges are protected, he said.
On why bureaucrats and people, who generally spoke in favour of the governments, quickly turn and fight for RBI’s autonomy after joining the central bank, Rajan said nobody wants to lose credibility.
“How long can you remain subservient and remain in the organisation? People talk behind your back about how subservient you are,” Rajan said. “People develop backbone very quickly. Otherwise you lose your credibility.”
In any case, RBI should be allowed to function independently.
“If you don’t have an independent central bank, you may end up like Zimbabwe,” he said.
The Indian economy has tremendous potential, Rajan said, but its weakness was always implementation.
“We talk but we don’t do. We just need to say we should do. We have fantastic entrepreneurs, we are capable of putting large satellites and rockets in space. Why every one of us is not rising to our potential,” Rajan said, adding in 10 years’ time India should transition to a middle-income economy.
“If we don’t achieve that, we should ask ourselves why we didn’t. Hopefully, there will not be any surprises like demonetisation in the future,” he said.