Wherever possible, public sector bank boards should be bound by the same rules as private sector bank boards – one reason why the RBI has recently withdrawn the Calendar of Reviews PSBs were asked to follow. Similarly, board membership of public sector banks should pay as well as private sector banks if they are to attract decent talent.
Although we view risks to the financial system separately from risks to growth and inflation, we think carefully about the interplay between them. In this FSR, we discuss three important financial system vulnerabilities: high household indebtedness; imbalances in the housing market; and increased investor risk taking. To some extent, all three are normal side effects of stimulative monetary policy.