Union Finance Minister, Arun Jaitley hits out at former RBI governor Raghuram Rajan on his ‘expert view’ to parliamentary panel on Non Performing Assets (NPAs) problem in which he criticized MSME lending. “I think for anyone to do postmortem is easier than action when it was required,” said Jaitley when he was asked about his view on Rajan’s analysis that MSME lending could be next source of problem for the banking sector. Rajan’s three year tenure came out with mixed results, some of his decisions were appreciated by policymakers and government but there was also substantial amount of criticism to some of his policies. He himself admitted in his ‘note’ to parliamentary commentary that things could have been done in a better way at RBI during his tenure.
Lok Sabha Committee on Estimates headed by Murli Manohar Joshi had asked for a response from Rajan over the NPA problem. Raghuram Rajan replied to various questions like why NPAs occurred, why did the RBI set up various schemes to restructure debt and how effective were they, did the RBI create the NPAs, why did the RBI initiate the Asset Quality Review, did NPA recognition slowed credit growth, why do NPAs continue mounting even after the AQR is over, what could the regulator have done better, and how should we prevent recurrence in his 17-pages long note.
In his note on NPA problem, Rajan warned the government to focus on sources of new crisis, “Government should focus on sources of the next crisis, not just the last one. In particular, government should refrain from setting ambitious credit targets or waiving loans,” wrote Rajan. He elaborated further on potential source of next crisis and wrote, “Credit targets are sometimes achieved by abandoning appropriate due diligence, creating the environment for future NPAs. Both MUDRA loans as well as the Kisan Credit Card, while popular, have to be examined more closely for potential credit risk. The Credit Guarantee Scheme for MSME (CGTMSE) run by SIDBI is a growing contingent liability and needs to be examined with urgency.”
In recent days public debate erupted on Rajan’s tenure at RBI. Last month BJP lawmaker Nishikant Dubey demanded a probe by the Central Bureau of Investigation (CBI) and the Enforcement Directorate (ED) against former finance minister P Chidambaram, former RBI governor Raghuram Rajan, and finance ministry officials on 80:20 gold import scheme started during UPA years. According to CAG report, government lost around 4500 crore due to 80:20 gold import scheme in which jewelers like Nirav Modi and Mehul Choksi, the main accused in 13000 crore PNB fraud case were prime beneficiaries. Raghuram Rajan was also criticized for comments on prevalent social issues of that time which is not expected from a government or public policy official because these comments could hurt markets unintentionally. NITI Aayog vice chairman, Rajiv Kumar said that credit crunch during Rajan era was responsible for slowdown of the economic growth. “GDP growth peaked at 9.2 per cent in January to March 2016 but declined successively for six quarters. NPAs rose exponentially to Rs 10.5 lakh crore — for loans given out during 2010-11 to 2013-14 — and commercial banks virtually stopped lending to industry. Medium and small industry was particularly hit”, Kumar said in a tweet. Rajan is currently a professor at Chicago Booth School of Business but his comments in crushing social issues in the country and his tenure as previous governor of RBI keeps him at hand in Indian media.