NEW DELHI: Former RBI Governor Raghuram Rajan said that while some state governments have shown a desire to switch to the old pension plan, doing so could result in the creation of obligations for the future.

He also warned banks against favouring retail loans too heavily.  Raghuram Rajan has warned Indian banks about their aggressive approach to retail lending and highlighted the risks involved in the case of a downturn.

On the sidelines of the World Economic Forum (WEF) in Davos, Rajan said that the former pension plan's enormous liabilities were the reason it was changed. He added that because liabilities are not recognised, defined benefit plans are simpler for governments to embrace.

Several state governments, including those of Rajasthan, Chhattisgarh, and Punjab, as well as Himachal Pradesh, have made it known that they intend to switch to the outdated pension system.

Rajan went on to say that although it is up to each state government to decide, these programmes should be specifically targeted at the most vulnerable members of society in order to help them.

The former RBI Governor also had a word of warning during the interview, for Indian banks for their shift towards retail lending, as he said that there could be potential risks in case of a downcycle.

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