Raghuram Rajan: Fix responsibility of big loans on single banker

A day after India celebrated her 70th independence day, RBI governor Raghuram Rajan made a strong pitch for a larger role for banks boards and for senior bankers to put their names to the final loan decision even though committees may take the final decision.

Mr Rajan said the incentive structure for bankers should be worked out so that they evaluate, design, and monitor projects carefully, and get significant rewards if these work out.

In a marathon speech at the FICCI-IBA annual banking conference he said “This means that even while committees may take the final loan decision, some senior banker ought to put her name on the proposal, taking responsibility for recommending the loan.

“The IT systems within banks should be able to pull up overall performance records of loans recommended by individual bankers easily, and this should be an input into their promotion,” he said.

Mr Rajan also stressed the importance of freeing bank boards to determine their strategies. He said “Too much coaching by central authorities will lead to a sameness in public sector banks that successive Gyan Sangams have criticised.

Executive appointment decisions should devolve from the Bank Board Bureau (BBB) to the boards themselves, while the BBB should focus only on appointing directors to represent the government stake on the bank boards as it transforms into the Bank Investment Company (BIC), the custodian for the Government’s stake in banks.