NEW DELHI: Former RBI governor Raghuram Rajan’s detailed response to a Parliamentary panel’s query about rising bad loans has snowballed into a political controversy with the top banker insinuating that the Prime Minister’s Office was sitting on a list of high-profile defaulters.
“RBI set up a fraud monitoring cell to coordinate the early reporting of fraud cases to the investigative agencies. I also sent a list of high-profile cases to the PMO urging that we coordinate action to bring at least one or two to book,” he said.
According to sources, the parliamentary panel led by Murli Manohar Joshi will now summon Nripendra Mishra, Principal Secretary to the Prime Minister, and Finance Secretary Hasmukh Adhia on what action was taken on Rajan’s fraud list.
Media reports say Rajan’s letter was written in 2015 and Winsome Diamond promoter Jatin Mehta’s name figured in the list. Mehta is among the wilful defaulters who have fled the country.
The comments had the Congress and the BJP locked in a slugfest with both parties defending the economic policies of their respective governments. While the Congress sought to establish the NPA pile was the Narendra Modi government’s creation, the BJP hit back saying Rajan’s remarks were a “loud proclamation” of the corruption done by the Congress.
“UPA chairperson Sonia Gandhi led a government that attacked the very core of the Indian banking system. Raghuram Rajan has said that between 2006-08, the UPA functioning led to increased NPAs in the Indian banking structure,” said Union minister Smriti Irani.
Congress chief spokesperson Randeep Surjewala alleged the PM has devised a new formula called “wink a loan scam” under which banks grant loan to “his crony capitalist friends” and hence, the rise in NPAs.
‘Loan Waivers Vitiate Credit Culture’
According to Rajan, loan waivers are poorly targeted, and eventually reduce the flow of credit. Agriculture needs serious attention, but not through loan waivers, he said
PSBs need not have an RBI nominee on the board as it only creates an ‘illusion the regulator is in control’. “The RBI is a referee, not a player in the process of commercial lending,” Rajan said
Days after Niti Aayog Vice Chairman Rajiv Kumar blamed Raghuram Rajan for the economy slowing down, Rajan dismissed the charge as “ludicrous” and made by people who had not done their homework.
“The RBI has been accused of slowing the economy by forcing NPA recognition. I actually gave a speech in July 2016 on this issue before I demitted office, knowing it was only a matter of time before vested interests who wanted to torpedo the clean-up started attacking the RBI on the growth issue,” Rajan said in his letter written to the Estimates Committee of Parliament, in response to a query about whether the NPA clean-up drive had slowed down growth.
A few days ago, Niti Aayog vice-chairman Rajiv Kumar blamed banks’ non-performing assets (NPAs) and “action taken by RBI chief Raghuram Rajan” to clean up the bad debts for the slowdown in the economy, while defending demonetisation.
Defending his decision, Rajan said that the slowdown was best attributed to over-burdened public sector bank balance sheets and growing risk aversion in public sector bankers.
“The obvious remedy to anyone with an open mind would be to tackle the source of the problem - to clean the balance sheets of public sector banks, a remedy that has worked well in other countries where it has been implemented,” Rajan said.
Citing the Economic Survey by former chief economic advisor Arvind Subramanian, he added, “This is not a ‘foreign’ solution, it is an economically sensible solution”.
“It is something that has been repeatedly flagged by the government’s own Economic Survey, under the guidance of the respected Dr. Arvind Subramanian. Clean-up was part of the solution, not the problem,” Rajan wrote.