Larger number of bad loans originated in 2006-2008: RBI ex-chief
New Delhi, Sep 11: A larger number of bad loans or NPAs originated in 2006-2008 when Indian economic growth was strong as the banks made mistakes, former RBI Governor Raghuram Rajan has said.
He said that global slowdown, project cost overruns and government decision-making were among the factors that contributed to the process.
"A larger number of bad loans originated in 2006-2008 when economic growth was strong, and previous infrastructure projects such as power plants had been completed on time and within budget. It is at such times that banks make mistakes. They extrapolate past growth and performance to the future. So, they are willing to accept higher leverage in projects, and less promoter equity," he said.
In a note to Parliament's Estimates Committee on Non-Performing Assets (NPAs) of public sector banks, Rajan called for examining MUDRA loans and Kisan Credit Cards more closely for potential credit risk.
In the note prepared on request of committee Chairman and BJP leader Murli Manohar Joshi, the former RBI chief said that the Credit Guarantee Scheme for MSME run by SIDBI is a growing contingent liability and needs to be examined with urgency.
Rajan pointed out that the loan waivers vitiate the credit culture and an all-party agreement to this effect would be in the country's interest in view of impending elections.
The Congress and Bharatiya Janata Party have traded charges over mounting NPAs and the Congress has been pressing the Modi government to announce loan waiver to farmers.
The former RBI Governor said that sometimes banks signed up to lend money based on project reports by the promoter's investment bank without doing their own due diligence.
Rajan said that years of strong growth before the global financial crisis were followed by a slowdown which extended to India and demand projections for various projects were shown to be increasingly unrealistic.
He said that a variety of governance problems such as suspect allocation of coal mines coupled with fear of investigation slowed down government decision-making in Delhi, both in the United Progressive Alliance and its successor NDA governments.
"Project cost overruns escalated for stalled projects and they became increasingly unable to service debt. The continuing travails of the stranded power plants, even though India is short of power, suggests government decision-making has not picked up sufficient pace till date," he said.
Rajan said that once the projects get delayed promoters with little equity left in the project loses interest.
"Ideally, projects should be restructured at such times, with banks writing down bank debt that is uncollectible, and promoters bringing in more equity, under threat of losing their project otherwise."
Referring to malfeasance and corruption as a factor in the NPA problem, Rajan said: "Undoubtedly, there was some... clearly, bankers were overconfident and probably did too little due diligence for some of these loans."
However, he said, the size of fraud in public sector banking has been increasing though it still is small relative to overall volume of NPAs.
"Unfortunately, the system has been singularly ineffective in bringing even a single high-profile fraudster to book. As a result, fraud is not discouraged."
Rajan said the RBI set up the fraud monitoring cell during his Governorship to coordinate early reporting of such cases to the investigative agencies.
"I sent a list of four high-profile cases to the PMO for coordinated action to bring at least one or two offenders to book. I am not aware of the progress. This is a matter that should be addressed with urgency," he said.
Rajan pointed out that bank recovery rate on defaulted loans was only 13 per cent of the amount at stake... the inefficient loan recovery system gave promoters tremendous powers over lenders," he said.
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UDF will have huge win in Kerala, NDA won't open its account: Cong leader Satheesan
Kochi (PTI): Senior Congress leader V D Satheesan on Friday expressed confidence in a huge win by the UDF, claiming it will make a clean sweep in five districts, and brushed aside speculations that the NDA will open its account in Kerala.
Satheesan, speaking to reporters here a day after the conclusion of the Assembly polls, praised the performance of the UDF leaders and workers during the election, saying it was the best ever he has seen in the last 30 years.
He said that his claims of the UDF getting over 100 seats is not a mere statement, but based on the work the front has done during the last five years to bring back all those who had left it in 2005 and as a result, there was a huge wave in its favour in the state.
The leader of opposition in the state assembly, who contested from the Paravoor constituency, further said that the Congress-led front also had a major social backing from minorities and marginalised groups in the society.
Besides that, there was an anti-incumbency feeling among the people who were disappointed with the LDF rule, he claimed and said that the UDF provided them with a hope and an alternative which no other opposition had done in the past.
"All these factors will contribute to a huge win for the UDF and it would not be surprising if we make a clean sweep in Malappuram, Wayanad, Ernakulam, Idukki and Pathanamthitta districts. That is a total of 43 seats," he said.
According to him, the polling percentage increased because the UDF got people added to the electoral list.
He also brushed aside the LDF remarks about a woman or youth CM, saying that "they can make such statements now as they know they cannot win".
"Otherwise, why did they campaign with Pinarayi Vijayan as the main factor. Why did they say a third Pinarayi rule will come?" he asked.
He also claimed that the LDF's decision to spend government money on its political campaign, by putting up hoardings and carrying out social media programmes to sway voters, has also backfired as people realised that their taxes were being wasted like that.
Asked whether the NDA will open its account, especially in areas where the UDF claimed the BJP-led front had made a deal with the LDF, Satheesan replied in the negative.
He said that as of now he does not see any chance of the NDA opening its account in the state.
