RBI Governor Hard Against Defaulters

Some of the big defaulters need to be booked quickly, says Rajan-Hindu Business Line

The Reserve Bank of India Governor Raghuram G Rajan has stressed the need to bring some of the big fraudsters and defaulters to justice quickly and in a transparent manner.

This, according to him, will send a message to others that fraudulent activities will not be tolerated.

 

“This is important because the legitimacy of the banking system will diminish if there is a sense that the big players can get away with anything while the small people suffer. I think we need to move as fast as we can on this,” he said in a letter to the central bank’s staff.

Highlighting the policy direction of the RBI, Rajan said one of the greatest challenges was to improve the governance structure of banks even while they reduce their stressed assets.

The letter expresses the tough stand of the RBI on inflation and gives the impression that it might not budge to demands for rate cut from many quarters; the next policy review is on February 2.

 

Stating that the inflation target of 6 per cent could be achieved in January 2016, Rajan said: “There was a time when people felt that meeting the target set by us was impossible. Now, the same people are saying, ‘Well, you met it easily, so now cut interest rates because you are being a little tough’.”

 

So, the pendulum swings a lot and RBI has to be immune to these swings, he cautioned. The only critical issue for the RBI is to set in place an effective monetary policy framework.

The liquidity framework introduced in 2014 was operating “fairly well” and the RBI was pretty close to linking the liquidity rates with policy rates, the Governor said.

New banks

Referring to the criticism on permitting only two new banks last year, he defended it by saying it was important to do it then in such a way that it “looked clean, felt clean and was clean” and people could not point a finger at the RBI which had given an opportunity to move forward in terms of fresh licensing.

 

For better regulation of broader credit intermediaries, including non-banking finance companies, the RBI will strengthen the State-level coordination committees.

 

Stop it now: After RBI's Rajan, now PSU banks' heads speak up against farm loan waivers too

 

Pune - To check adverse impact of farm debt waiver programmes on the banking sector, heads of the public sector banks have now joined the chorus to seek elimination of such schemes after the issue was red-flagged by RBI Governor Raghuram Rajan last month.

Last month, the RBI governor had said debt waiver schemes have constrained flow of credit to farmers.

 

 

"In some states on certain occasions we have had debt waivers. How effective these debt waivers have been? In fact the studies that we have typically show that they have been ineffective. In fact they have constrained the credit flow post waiver to the farmers," he had said.

 

Doing away with debt waivers schemes of the government was one of the recommendations by the bankers at 'Gyan Sangam' or Bankers' Retreat which concluded here on Saturday.

Besides, they have also sought removal of interest rate caps on agriculture loans of less Rs 3 lakh so that there is no artificial distortion in credit market.

Andhra Pradesh and Telangana governments had declared loan waivers for the farmers hit by cyclone Phailin last year.

While the Telangana government has given the mandated 25 percent of the written off loan amount to the banks, Andhra Pradesh has not done it so far.
Banks have over Rs 1.3 lakh crore exposure to the farm sector in these two states.

In 2008, the then UPA government at Centre had come out with Agricultural Debt Waiver and Debt Relief Scheme (ADWDRS) 2008 under which 3.69 crore small and marginal farmers and 60 lakh other farmers were given debt relief to the extent of Rs 52,516 crore.

Government auditor CAG had found in several cases that ineligible farmers were given benefit while deserving were left out, pointing to large-scale possibility of fraud.

Besides, top management of the bank also sought digitisation of top 30 processes including land records so that risk of frauds could be minimised.

Sensing opportunity from ambitious Digital India campaign of the government, bankers in the 2-day retreat also pitched for enabling infrastructure for Digital Banking under the campaign.

Bankers also felt the need for deepening of mobile banking penetration and creation of data and analytics for improving efficiency of the sector.