RBI Governor Raghuram Rajan warns against witch-hunt of bankers

Written by ENS Economic Bureau | Mumbai | Updated: Aug 6 2014, 13:08pm hrs
Raghuram RajanRBI Governor Raghuraman Rajan during a press conference announcing the monetary policy at RBI headquarters in Mumbai. (PTI)
Reserve Bank Governor Raghuram Rajan on Tuesday cautioned that the arrest of Syndicate Bank chairman in a bribery scandal should not lead to a witch hunt in the entire banking system. He, however, admitted that there are governance issues in public sector banks.

Rajan said the RBI has ordered the inspection of the books of public sector Syndicate Bank following the arrest of its chairman and managing director SK Jain for allegedly taking a bribe of Rs 50 lakh. There is an inspection underway of Syndicate Bank but I think one has to be very careful about extrapolating this issue to entire banking system without thinking further through, he said.

When asked whether the CBI has started collecting details of NPAs and debt restructured accounts, RBI Deputy Governor SS Mundra said the RBI is not aware of any such development. I think balance has to be maintained and we have to be also careful. While we do thorough investigation and culprits are brought to book, it does not become a witch-hunt which then stalls the entire credit process, Rajan said.

It is important for an enforcement agency to ensure full investigation is done. I think they are doing that..., Rajan said. We need to again look at the governance of the public sector bank and understand the deficiency there and try and improve it, he said. Acknowledging that there are lots of highly qualified people working in PSBs, he said they should not be tarred with same brush.

Rajan said the whole point of banking is about taking risks and using discretion in taking those risks. You may trust (a customer) a little more, there is some chemistry that works, thats relationship banking. For the outside to dictate that this is the price you have to charge takes the banker out of the equation. In that case you might as well put a machine there and give loans. Some machines do that, but that is for small loans and that is called credit score. For large loans it is impossible to take out bankers judgment.