1. Will create system to force promoters to absorb losses: RBI Guv Raghuram Rajan

Will create system to force promoters to absorb losses: RBI Guv Raghuram Rajan

Reserve Bank Governor Raghuram Rajan has said the RBI was working for the creation of a system to force the promoters of failed...

By: | Mumbai | Published: January 18, 2015 8:04 AM
Raghuram Rajan, Rajan RBI, Rajan Banks

Raghuram Rajan said that he was not feeling pressure to change the direction of monetary policy and has a harmonious working relationship with Narendra Modi’s top economic policy makers. (PTI)

Reserve Bank Governor Raghuram Rajan has said the RBI was working for the creation of a system to force the promoters of failed ventures to “absorb the losses instead of shoving it on to banks”.

“One of our attempts here is to make sure that the system is evenhanded, that the large guy also repays, or if he or she cannot repay, that the debtholders have strong recovery rights,” Rajan said in an interview to The New York Times. “Now that’s work in progress. But it is extremely important to make the system legitimate.”

Gross non-performing assets of Indian banks are close to Rs 2.70 lakh crore. The total stressed assets including restructured loans amount to 10 per cent of the advance. “And that (recovery) has been one of the big focuses of the last few months: How do we get the big promoter to absorb the losses and not shove it onto the banks? And how do we make sure that the system works for everybody in the same way?” he asked.

“One of the worries about capitalism is ‘heads the capitalist wins, and tails the system loses, but the capitalist is OK all the time.’ To get a proper capitalist — or I should rather say, free enterprise — system in this country, we certainly need people to have the ability to take risk,” Rajan said.

But if they do take the risk, they should pay the costs of taking that risk, rather than benefit when that risk pays off, “but shove the cost on somebody else when it doesn’t,” he added.

Rajan said that “he was not feeling pressure to change the direction of monetary policy”. He described a harmonious working relationship with Modi’s top economic policy makers. “We completely understand each other,” he told NYT.

Rajan defended his decision not to lower interest rates at his last monetary policy review on December 2. While oil prices had already fallen considerably by then, he said there was no way to foresee the abrupt plunge that followed, or to pass judgment on how long prices would stay low.

On the need for greater coordination by central banks and restraint in quantitative easing, “my sense is that industrial countries are looking inwards so much that expecting international cooperation for anything other than the crisis of the day is probably wishful thinking. See, these are all attempts to — what’s the right word — to sensitise thinking. And I think that the speech had that effect.”

“In fact, many people have come around to the point of the speech that additional QE is largely about exchange rates … than really energising a lot of domestic activity. I think that is now a much more widely held view than when I started talking about it,” he said.

“But the point, I think, is that it had had the benefit of at least making people aware that when the time comes, when sort of market volatility creates the crisis somewhere, that there is a need for the international system to come together to fix it,” he said. “You know, I was hoping we would put in place a system anticipating crisis, but if it is post-crisis, at least making sure we can pick up the pieces reasonably efficiently.”

On his worry that central banks have gone too far in cushioning shocks in financial markets, he said, ‘Effectively, every time prices move considerably, some central bank says, ‘Wait a minute, wait a minute, I’m going to give you some fresh liquidity,’ and we essentially offer a put option to the markets. So it’s not a Bernanke put or the Greenspan put. Now it’s the universal central bank put. Have we, in an attempt to banish volatility — which wasn’t, I think a direct objective of any central bank, but indirectly, we’ve … created the danger of much more volatility.”

  1. J
    Jerry
    Jan 20, 2015 at 4:52 am
    Wow !! What a Shocker !!! npa's of banks in US $ works out to $ 4500 crores ($ 4500 million or $ 4.5 billion ). BJP should p an ordnance allowing the publication of the list of all directors of the concerned non performing companies including the amounts borrowed. Play the Name & Shame Game and see how they squirm . Let the public know their Idols with the feet of Clay. List will help other banks know about defaulters and their bad credit rating !!You will find that in future the NPA's will come down to industry standards worldwide
    Reply
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      jagdish
      Jan 18, 2015 at 3:16 pm
      RBI chief must think and state about SME industry separately than big houses because today SME industry in all states suffering lot with such harsh statements of RBI & SEBI chiefs,local bank Managers/AGMs/DGMs/GMs in all states are not feeling easyness in taking decisions of restructuring even if the SME industry is able to come out of financial crisis and banks have ample collateral securities,also local banks in states charging high interest rates up to 18%,now we rightfully demands from the RBI chief to comment separately on SME industry which is NPA due to wrong policies of Congress govt(ban of construction & essential material mining which made the maximum industries and businesses slow).Now what is the fault of promotors of such SME industries in all states who are bearing losses of slow down (fixed heavy expenses of penalised interest charged by banks ,Labour & staff expenses & other expenses), where is the losses to banks due to SME industry ,pl eleborate separately,if big houses have exploited the banks then treat them seperately and comment on big houses seperately,because harsh statements of RBI & SEBI chiefs harms the w industry in states because local bankers acts and treats as per RBI and SEBI chiefs statements. Humble submission,pl think of economy of all states and promotors who have put their full life stakes in industrial units and giving very good revenue both to the banks and governments
      Reply
      1. J
        jagdish
        Jan 18, 2015 at 9:22 am
        RBI chief must think and state about SME industry separately than big houses because today SME industry in all states suffering lot with such harsh statements of RBI & SEBI chiefs,local bank Managers/AGMs/DGMs/GMs in all states are not feeling easyness in taking decisions of restructuring even if the SME industry is able to come out of financial crisis and banks have ample collateral securities,also local banks in states charging high interest rates up to 18%,now we rightfully demands from the RBI chief to comment separately on SME industry which is NPA due to wrong policies of Congress govt(ban of construction & essential material mining which made the maximum industries and businesses slow).Now what is the fault of promotors of such SME industries in all states who are bearing losses of slow down (fixed heavy expenses of penalised interest charged by banks ,Labour & staff expenses & other expenses), where is the losses to banks due to SME industry ,pl eleborate separately,if big houses have exploited the banks then treat them seperately and comment on big houses seperately,because harsh statements of RBI & SEBI chiefs harms the w industry in states because local bankers acts and treats as per RBI and SEBI chiefs statements. Humble submission,pl think of economy of all states and promotors who have put their full life stakes in industrial units and giving very good revenue both to the banks and governments
        Reply
        1. J
          jagdish
          Jan 21, 2015 at 10:13 pm
          SME industry in all states suffering lot due to handling in single way by banks and RBI, needs to correct,pl read my note below
          Reply

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