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Raghuram Rajan talks tough, asks banks not to outsource evaluation of infrastructural projects to avoid further scandals

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Reserve Bank of India (RBI) governor Raghuram Rajan discussed financial inclusion in detail at the inaugural speech of the banking conference organised by the Federation of Indian Chambers of Commerce and Industry (FICCI) and Indian Banks' Association (IBA)?. Financial inclusion was discussed in terms of sectors as well as the new scheme of Jan Dhan Yojna that Prime Minister Narendra Modi had inaugurated on August 15, Independence Day.

In terms of sectors, Rajan said there was no way but to fund infrastructure projects in a big way as there was no alternative funding route for the big projects. However, he said banks would have to practice more informed and engaged banking. He complained that banks cannot outsource project evaluation and in house skills have to be used. To avoid scandals, Rajan said banks must see that promoters bring better equity and not leverage equity for a new project.

He advised banks not to make mistakes they made earlier. He said banks must also structure infra loans better, taking into account the real risks a project might face in future. That evaluation must be done by banks themselves. Any recognition of distress can then be worked upon quickly and banks can coordinate among themselves for that. 

For the Jan Dhan scheme, Rajan was very cautious in his approach. As much as the RBI governor appreciated the move, he cautioned that bank employees must not take the poorest of the society for a ride. He said that the customer grievance redressal has to be very good and banks must not be another source of abuse for the poorest.

Finally, for better inclusion he said it was important to question priority sector norms. He raised pertinent questions about what exactly is 'priority sector'. Taking an example of students going overseas for study, he said such loans are under priority sector but questions should be asked whether the person in consideration is really needy or not. In a sense Rajan advocated for careful consideration before lending. 

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