Rajan also lauded the government's efforts to crackdown on wilful defaulters.
Lauding the efforts taken by the government to take action against wilful defaulters, RBI Governor Raghuram Rajan said the central bank has created a monitoring cell for early reporting of frauds to investigative agencies.
"We should send the message that no one can get away, and I am glad that the Prime Minister's Office is pushing prosecution of large frauds.
The RBI has set up a fraud monitoring cell to coordinate the early reporting of fraud cases to the investigative agencies," Rajan said addressing an event here.
He further said quick and effective investigation by the agencies is very important to check frauds.
Bankers sitting with investigative agencies will send strong message
Rajan, who has decided to hang up his boots and return to the academia, said the sight of a banker sitting along side an investigative agency will send a strong message to the borrower and make him cough-up the money owed.
"Those who have diverted money out of their companies, especially into highly visible assets abroad, a stern message sent by bankers sitting together with investigative agencies should help send the message that the alternatives to repayment can be harsh."
Interestingly, the comments were made in the city that used to house the headquarters of Vijay Mallya-owned companies before the liquor baron moved to the UK earlier this year.
Rajan said RBI has given a lot of flexibility to banks to deal with genuine cases of loan losses with measures like 5/25 scheme of rescheduling loans,but warned about its misuse.
"It's extremely important that banks don't use the new flexible schemes for promoters who habitually misuse the system or for fraudsters," he said.
Meanwhile, Rajan also made a case for protection for bankers from government's oversight wings like the CVC and CAG, saying before acting against a professional, the agency should establish a pattern of indulgence in potential impropriety on multiple occasions.
"It is hard to distinguish sensible risk-taking from carelessness or from corruption," he said, offering his solution. "Part of the solution is to not label a banker based on the outcome of a single loan but instead look for a pattern across loans," adding such a practice can "control malfeasance while rewarding risk taking".
Rajan also pitched for doing away with the committee-based approach of loan sanctioning, saying it diffuses responsibility for decisions.
Flagging the issue of short tenures of managers, the Governor said this makes them postpone recognition of the loan losses and leave it for their successor to deal with.
Calling for diligent monitoring of borrowers, Rajan said many loans turned bad in the last cycle because of laxity by the banks for being updated on the progress of a project.
The collection process is "prolonged and costly "despite banker-friendly laws like Sarfaesi Act and the presence of Debt Recovery Tribunals, he said and rued that judicial reforms to the DRT can help it easier for the banks to collect money but those are stuck in Parliament.
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 "RBI Governor Raghuram Rajan")
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