many state governments has shown intention to go back to the old pension scheme. On this, former RBI Governor Raghuram Rajan said that by doing this government expenditure will be reduced, but the liabilities for the future may increase. He has cautioned banks on too much inclination towards retail lending. In an interview to an online portal on the sidelines of the World Economic Forum (WEF) in Davos, Rajan said the new pension scheme was adopted because the old scheme had huge liabilities.
These states restored the old pension scheme
He further said that it is easier for governments to adopt defined benefit plans as liabilities are not being recognized. Many state governments like Rajasthan, Chhattisgarh and Punjab have adopted the old pension scheme, including Himachal Pradesh. Rajan further said in the interview that although it is for each state government to decide, these schemes should be effectively targeted towards the weaker sections of the society, so that they can get the benefits.
Banks were also warned
The former RBI governor also cautioned Indian banks against their shift towards retail lending during the interview, as he said there could be potential risks in case of a recession. Rajan’s comments come at a time when Indian banks have seen a huge jump in retail assets as compared to wholesale loans. In the interview, he was quoted as saying that banks should examine all the risks involved in infrastructure lending. The former banker said that between 2007 and 2009, the RBI moved towards infrastructure loans, though problems cropped up later.