RBI deputy governor Viral Acharya suggests privatising some lenders

MUMBAI: The Reserve Bank of India has stepped up its campaign for fixing the problems of state-run banks, with deputy governor Viral Acharya suggesting that privatising some lenders may be the solution if the country has to break the cycle of poor credit flow to its productive sectors.

State ownership of banks and deposit guarantees breed complacency and bank managements end up throwing good money after bad, said Acharya at a conference. The number of state-run banks could also be shrunk through mergers, as there are innumerable co-operative and community banks to lend in the remote areas, he said.

Funding the stressed state-run banks with more capital without any definitive strategy on bad loans and recoveries would be of no help, he said. A combination of things is essential to capitalise the positive momentum created by the current economic fundamentals.