DNA Edit: Pandora’s Box – Raghuram Rajan asks his critics to do their homework

Former RBI governor, Raghuram Rajan, asked his critics to do their “homework” before alleging that his policies had led to the spike in bad loans. He has hit out at the NITI Aayog vice chairman Rajiv Kumar who had said that Rajan’s policies led to NPAs rising from Rs 4 lakh crore to Rs 10 lakh crore. This is the first time that a former RBI governor’s conduct has become fodder for a political debate. Kumar’s argument was a political attack on an economic issue. Rajan is guilty of identifying the problem of NPAs, forcing the banks to recognise it through higher provisioning for such assets. Hence the recognition of the problem is not a mistake; not solving it, is. But these nuances are not of importance in political debates. 

Moreover, ambiguity in policy framework during UPA, spiced up with the irrational exuberance of the bankers during 2006-2008, led to the build up of toxic assets in India’s banking system. The crony capitalism during UPA times led to funding of unviable projects and companies. The power sector mess that we see today is the result of wrongful allocation of coal mines and lack of due diligence on funding. Rajan’s 17-page reply to the Parliamentary Estimates Committee, which had sought his explanation on the NPA crisis, is primarily a political response to economic problem. The reply itself is well researched and rightfully identifies the causes of the bad loan malaise. 

Niti Aayog chairman would be forced to do some rethink before he counters Rajan’s charge that decision-making in NDA government is also slow specially in the case of power companies in a power deficit country. It is not just a theory for Rajan. After dissecting the NPA problem in detail, he has also used the opportunity handed to him by the Parliamentary committee to highlight a list. He says that this list of high profile cases of non-performing assets was sent to the Prime Minister’s Office for investigation. Fraud on over invoicing of imports by unscrupulous promoters was perpetrated to inflate cost of capital equipment. Rajan is attacking the PMO for inaction on this list of cases. 

While bankers were spending sleepless nights on how they would recover their Rs 5000 crore debt (interest included Rs 9000 crore), Vijay Mallya had a grand birthday bash at his plush seaside bungalow in Goa with Enrique Iglesias crooning songs for him. Later, Rajan had said if you flaunt your birthday bashes even while owning the system a lot of money it is sending out a wrong message. That was the time Rajan refers to in his reply when bankers used to run after promoters with a cheque book willing to sign off any amount; they wanted to show growth in their books. Banks’ money is the common man’s money; it is time we got serious about protecting it. Rajiv Kumar fired the first shot, but Rajan may have the last laugh if he decides to reveal more about his tenure in RBI.