Raghuram Rajan
Raghuram RajanReuters

Former Reserve Bank of India (RBI) Governor Raghuram Rajan reckons it is better to merge banks when they are healthy, but more importantly, he pointed out that banks should focus more on cleaning up their balance sheets.

"There is a little bit of a catch-22 situation — if you don't have the capacity and management capability, it is better not to pursue a merger before bringing them. You have to be careful, because mergers take time and consume a lot of effort, especially if we are merging very different entities, from different areas and with different cultures," Rajan was quoted as saying by Business Standard.

Speaking at his latest book launch 'I Do What I Do: On Reforms Rhetoric and Resolve' in Chennai, he said that he wanted to give young people an idea of "what we do at the RBI, and why we do it."

After demitting office in September last year, Rajan has gone back to academics. He currently teaches finance at the University of Chicago.

Putting all speculations to rest, on interference faced from the government, he said, "I had very cordial relations with both the governments, kept them informed and essentially had government support all along the way."

Speaking on demonetisation, Rajan said that he had flagged his concern that the short-term costs of demonetisation would outweigh the long-term benefits. He said he had also suggested "alternatives" to achieve the goal of purging black money.

Raghuram Rajan
Book cover of I Do What I Do: On Reforms Rhetoric and ResolveHarper Collins

Rajan opined that demonetisation has hit the country's poor the hardest. "It is probably fair to say that demonetisation has had the largest impact on the people who transact informally, of which many might be very poor.... As the economy gets remonetised, hopefully, some of them will bounce back but there are also people with very thin buffers. Some informal firms may have closed down because of the kind of stress they experienced and we will have to, over time, see how we can measure and get a full understanding of the impact of demonetisation," he said.

Rajan further said that at times, the central bank chief has to speak out on matters where he disagrees with the government. "In that duty (as RBI governor), you sometimes have to say no to pressures that come down on you. You are not quite in the place of a bureaucrat and the mistake that some people make is treat the RBI governor as yet another bureaucrat. They may say that this is not according to rules, but you as RBI governor have to make a judgment," he explained.