New Delhi, March 15 - Public sector banks (PSBs) are important for the country, but there should be better governance and monitoring, said former Reserve Bank of India (RBI) governor Bimal Jalan, adding that the recent Punjab National Bank (PNB) multi-crore fraud was a painful crisis.
"The character of public sector banks is extremely important... in public interest," Jalan said in an interview to BTVI, adding: "The only thing that we need to move on is regarding the governance structure of the public sector banking system. Much more autonomy should be given to the boards and (they should be made) accountable for the performance."
The PSBs are extremely important from the country's point of view, he said, as they are the ones which have expanded to rural and semi-urban areas and into the agriculture sector, where the largest section of Indians are employed.
"By and large this particular PNB crisis (Rs 13,540 crore fraud) is a very painful crisis from the systemic point of view," he said, adding: "I hope now we will see some improvement in the structure and management of the banking system and accountability of the boards of different public sector banks for performance and monitoring outcomes."
The banks should be accountable and the government should monitor their performance, he said.
The former RBI governor noted that the governance system is crucial for PSBs to function and they must stick to international standards in terms of cash reserve ratio and non-performing assets, among others.
With the recent reforms, such as the bankruptcy code, and prospective reforms in management and governance, the situation in the non-performing asset-ridden PSBs is likely to return to normal in two years time, he added.