SENSATIONAL: Former RBI Governor Raghuram Rajan blames 'incompetent or corrupt' banks and cites UPA era scams in response to Lok Sabha over NPAs

Former Reserve Bank of India (RBI) Governor Raghuram Rajan has written back to Lok Sabha Committee on Estimates in response to a letter issued to him seeking his input on Non-performing Assets (NPAs) that have encumbered balance sheets of Indian banks, and over which re is currently a heated debate in context of performance of Indian economy.

Remarkably, Raghuram Rajan, who exited India's central bank in September 2016, has, among or things, traced rise of NPAs in India's banking system squarely to time that UPA government was in power, and has also cited 'scams and policy paralysis' as being responsible.

BANKS 'INCOMPETENT OR CORRUPT'

Most of all, Rajan has taken on banks, whom he has accused of failing to do due diligence. He has recounted that y inste based ir lending on good profits of infrastructure firms till 2006, but that two years later, loans started turning b.

Rajan, who is currently Karine Dusak Miller Distinguished Service Professor of Finance at Chicago Booth School of Business, said that banks were slow to respond to emerging crisis. On this, he sensationally says that he can't say wher it was due to incompetence or corruption of bankers.

Consequently to this, Rajan says, banks preferred to evergreen b loans (essentially meaning restructuring under terms that may allow debtors to more easily pay m back) rar than declaring m as NPA. As a result, he says that re was a cascing of b loans over a period of time.

ON UPA SCAMS AND PARALYSIS

Rajan, who h been appointed India's Chief Economic visor (CEA) and subsequently RBI governor by UPA 2 government also cited massive scams that h been detected to have taken place under Dr Manmohan Singh's Prime Ministership. He says that once NPAs h begun to casce, scams such as Coalgate and ors slowed down government decision-making, having an verse impact on ongoing projects, reby negatively affecting profitability and b loans.

ON RBI'S ACTION & BANKS' INACTION

Rajan also answered in relation to an economic opinion that was expressed recently by Niti Aayog Vice Chairman Rajiv Kumar, who said mechanisms of identifying and demarcating NPAs implemented during Rajan's time as RBI governor h resulted in NPAs ballooning from around Rs 4 lakh crore to around Rs 10 lakh crore, thus impacting banks which began to pull back ir credit and NPA companies who became starved of working capital, reby resulting in a slowdown in India's economy. Rajan, while likely not replying directly, spoke about scenario but put blame on banks. He said that as RBI introduced measures, banks dired despite being aware of crisis. He said that RBI couldn't do much as it isn't a commercial banker, but conceded that RBI representatives on banks' boards were not effective.

He ded that following asset quality review (AQR) instituted by RBI, banks became scared of investigation and this led to more inertia in lending and debt recovery. He said debt recovery tribunals were very slow and took an average of four years.

EXPLOSIVE: Niti Aayog VC Rajiv Kumar Issues Unprecedented Defence Of Demonetisation, Says India's Growth Slowdown Resulted From Raghuram Rajan's Hawkish Policy On NPA Identification, And Delivers Chidambaram-defying GDP Growth Forecast