Noting that work is still in progress to reform India's public-sector banks (PSBs), Reserve Bank of India’s (RBI) former governor Raghuram G Rajan has said that one of the biggest challenge is cleaning up of their balance sheets. He also said that it is extremely important that the banks get back into the business of lending as that is holding up the economy at this particular point of time.
Rajan further said that PSBs would only improve if they have competition. In order to increase competition in the banking sector, he said that the RBI issued lot of things which include giving 23 bank licenses. On financial inclusion, he stated that instead of focusing on lending money and bring them under the banking fold, the focus should be on making the people manage their money and then provide them credit. He said financial inclusion would work in the long run only if it is made profitable for the banks.
Talking on the mergers in the banking sector, Former Governor has said that mergers can happen between healthy banks and not amongst weak ones and the central government should be careful in this regard. In case of weak banks, he pointed out that more time has to be spent on cleaning up their balance sheets. He added that the effort needs management capacity to make weak bank's balance sheets healthy.