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PSU bank merger should follow balancesheet clean-up: Rajan

Wednesday, September 13, 2017

Mergers of PSU banks should be done only after balancesheets are cleaned up and these are nursed back to health with adequate capitalisation, said former RBI governor Raghuram Rajan.

"I would say restore the banks to health, get active board composed of professionals. There has been a steady attempt to professionalise banks and remove political hacks. Once we have done that, I think there will be an ideal situation for merger," he said in an interview to PTI.

He was responding to a question on the government's push for consolidating public sector banks with an aim to create fewer and larger banks.

Rajan also suggested that decisions need to be made by those who understand the banking system rather than necessarily by bureaucrats. "It seems to me that cleaning up has been postponed for one reason or the other. We are in a reasonable position to do it. We need to actually achieve it and put the capital that is necessary to recapitalise the banks where it is needed and after it seems that some of the (merger) decisions can be made," he added.

The statement assumes significance as the government recently initiated the process of second round of consolidation in public sector banks by constituting an Alternative Mechanism to oversee proposals of amalgamation.

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