Video: Former RBI Governor Raghuram Rajan blames UPA govt for High NPA in Banks
Former RBI Governor Raghuram Rajan has blamed UPA government for High NPA in Banks. Raghuram Rajan has praised Modi Government for improving the working structure of Banks. He also said that Banks gave loans leniently during UPA Regime.
Former Reserve Bank of India (RBI) Governor Raghuram Rajan recently shared insights into the state of Indian banks before and after the global financial crisis of 2008. Rajan, who took charge of the RBI in 2013, explained how the crisis, along with policy mistakes and corruption during the UPA government, led to a sharp rise in bad loans, which eventually turned into non-performing assets (NPAs). Watch video below. 👇
Former RBI Governor Raghuram Rajan blames UPA (Congress) Government for high NPA in Banks and praised Modi Government for good management of Banks. @RBI pic.twitter.com/8xC2NH5kjp
— Hellobanker (@Hellobanker_in) December 21, 2024
Before the 2008 crisis, Rajan said that banks were too lenient in distributing loans. “Banks would approach businessmen with cheque books, asking how much money they needed,” he recalled. This was because projects were typically completed on time, and banks would recover their loans. However, the situation changed drastically after the financial crisis, and banks started facing difficulties in recovering loans.
Rajan pointed out that the issues were not just global. “Corruption and policy mistakes in India also contributed to the rise in bad loans,” he explained. The delay in approvals for projects, including environmental clearances and land availability, caused many projects to be delayed or abandoned. As a result, the loans provided by banks for these projects became stuck, turning into NPAs.
He also highlighted that the previous RBI Governor had introduced a moratorium on bad loans, which temporarily stopped banks from classifying them as NPAs. However, Rajan believed this only worsened the situation. “When I took over, I ended the moratorium policy,” he said. “I felt that if NPAs were postponed further, the situation would only get worse.”
Rajan’s team at the RBI began examining the accounts of banks, which revealed a significant amount of bad loans that had not been classified as NPAs due to the moratorium. To address the NPA crisis, Rajan emphasized two key actions: identifying NPAs and injecting more capital into banks.
He credited then-Finance Minister Arun Jaitley for his support in addressing the issue. “When I told him about the need for more capital in banks, he said, ‘Do what is necessary,'” Rajan recalled. This led to a series of measures to clean up the banks’ balance sheets, which Rajan believes were crucial in stabilizing the banking sector. Rajan’s efforts to address the NPA crisis and his partnership with Jaitley were instrumental in the long-term health of India’s financial system.
