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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CM Siddaramaiah alleges ‘criminal conspiracy’ in Sringeri recount, vows legal action
Bengaluru (PTI): Alleging a “criminal conspiracy” by BJP candidate D N Jeevaraj in the Sringeri Assembly poll recounting, Karnataka CM Siddaramaiah on Tuesday said the outcome was manipulated after valid postal ballot votes in favour of Congress leader T D Raje Gowda were tampered with during the recounting process.
Following a Karnataka High Court order on an election petition filed by Jeevaraj, challenging Raje Gowda’s election, the reverification and recounting were conducted on Saturday.
After the reverification and recount of postal ballots for the Sringeri Assembly constituency, votes polled in favour of Raje Gowda were reduced by 255, the returning officer said.
A report on the matter has been submitted to the Election Commission of India for further action, the officer added.
Congress leader Raje Gowda had won the 2023 Assembly polls from Sringeri by 201 votes, defeating his nearest rival Jeevaraj.
Addressing a press conference in Bengaluru, Siddaramaiah said the High Court had directed the recounting of postal ballots and that irregularities were noticed during the exercise conducted on May 2.
“This is a clear case of criminal conspiracy,” Siddaramaiah said, alleging that valid votes cast in favour of Raje Gowda were altered after being accepted by counting agents of all parties, including Congress, BJP, and JD(S).
He claimed that during the recounting of postal ballots, 255 votes were initially accepted as valid by all agents but were later tampered with by subordinate officials.
“There is a second mark on the votes polled in favour of Raje Gowda. They had accepted these as valid votes. Subsequently, another mark was made by officials. This is a clear case of criminal conspiracy,” he said.
When asked who was behind the alleged conspiracy, the CM replied, “It was hatched by Jeevaraj and others. It is planned.”
Siddaramaiah further alleged that the returning officer acted improperly by declaring the result despite the presence of an Election Commission observer during the recounting.
“Immediately after the counting, the returning officer announced the result. He should not have done so; this is against the law,” he said.
He pointed out that Raje Gowda had originally won by 201 votes, but after the recounting, the BJP candidate was declared the winner by 52 votes.
“The BJP has committed a criminal act of conspiracy. This is not vote chori but vote dacoity,” he alleged.
The CM said a police complaint had already been filed by Raje Gowda’s election agent, Sudhir Kumar, and emphasised the need for electoral integrity.
“We want transparency and free and fair elections. That is what our Constitution mandates,” he added.
Stating that the government would pursue legal remedies, Siddaramaiah said, “We are preparing an appeal challenging the returning officer’s announcement in a court of law.”
Responding to a separate query on elections in other states, the CM said there appeared to be an anti-incumbency factor in West Bengal, while results in Tamil Nadu were “surprising,” adding that Vijay’s party was emerging as the largest there.
Following the victory of party candidates in Bagalkote and Davanagere South, Siddaramaiah expressed confidence about future electoral prospects in Karnataka.
“Even in 2028, we will win the Assembly elections. We will come back,” the CM said.
Siddaramaiah added that he would order a forensic examination into the alleged tampering of postal ballots.
