The governance of public sector banks (PSBs) and monitoring process of non-performing assets (NPAs) needs improvement in order to tackle the growing problem of bad loans, said former Reserve Bank of India (RBI) governor Raghuram Rajan. In addition, loan recovery process needs to be strengthened and public sectors banks need to maintain distance from the government, PTI reported Raghuram Rajan as saying.
Raghuram Rajan briefed the Parliament’s Committee on Estimates after former Chief Economic Advisor (CEA) Arvind Subramanian heaped praise on the former for identifying the NPA crisis and working out to resolve it. Rajan is currently the Katherine Dusak Miller Distinguished Service Professor of Finance at Chicago Booth School of Business. He served in the capacity of RBI governor for three years till September 2016.
The bad loan problem mainly surfaced due to slowdown in the government’s decision making process and economic growth seeing a dip along with over optimistic bankers, he told Parliamentary panel in a note. “A variety of governance problems such as the suspect allocation of coal mines coupled with the fear of investigation slowed down government decision making in Delhi, both in the UPA and the subsequent NDA governments”, PTI reported citing his note.
Lack of due diligence
“Clearly, bankers were overconfident and probably did too little due diligence for some of these loans. Many did no independent analysis, and placed excessive reliance on SBI Caps and IDBI to do the necessary due diligence. Such outsourcing of analysis is a weakness in the system, and multiplies the possibilities for undue influence,” the note said.