Admitting that there are governance issues in the public sector banks, Raghuram Rajan underlined the need for improving transparency in sanction of loans.
"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. It (Syndicate Bank episode) does raise the troubling issue," Rajan said after unveiling third bi-monthly monetary policy review.
CBI arrested Syndicate Bank Chairman and Managing Director S K Jain on August 2 for allegedly accepting bribe of Rs 50 lakh to enhance the credit limit of some companies.
"It is important for an enforcement agency to ensure full investigation is done. I think they are doing that...all the problem in the banking system is because of criminality rather than because of other factors," he said.
"I think balance has to be maintained and we have to be also careful. While we do thorough investigation and culprit are brought to book, it does not become a witch-hunt which then stalls the entire credit process," he added.
Rajan emphasised that there is need to overcome deficiency in the public sector banking system.
"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, highly reputable people working in the public sector bank, he said "they should not be tarred with same brush".
Asked about improving transparency in pricing of loans, Rajan said: "The whole point about banking is taking risk and using of discretion in taking those risks. Somebody you would be trusted more. There is some chemistry that works. So, for outsider to dictate this is the price that you are going to charge puts banker out of the equation."
He added: "I think for some large loans, it is impossible to take out banker judgement. When there is banker judgement you have to be careful about genuine banker judgement and what is not genuine banker judgement. That's to some extent very very hard thing to do."
So, he said, it is very difficult to make all loans uniform based on some 'observable characteristics'.