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New Delhi: Overly optimistic bankers, the slowing down of the government's decision-making process and the moderation of economic growth have mainly contributed to the rise in bad debt, said former RBI governor Raghuram Rajan in a note to a panel parliamentary.
In a note addressed to the chairman of the Committee on Estimates, Murli Manohar Joshi, he said: "Various governance issues, such as the suspicious allocation of coal mines Governments NDA".
Project cost overruns have intensified for blocked projects and they have become increasingly unable to repay debt, he added, adding that India's lack of power suggests that the decision-making process the government has not yet made progress.
He added that a greater number of bad loans had been contracted between 2006 and 2008 while economic growth was strong and that previous infrastructure projects, such as power plants, had been completed in the last few years. within the limits of the budget.
Photo of the record of former RBI governor Raghuram Rajan. PTI
"That's when banks make mistakes – they extrapolate past growth and performance in the future, so they're willing to accept more leverage on projects and less equity. by the promoter's investment bank, without due diligence, "he said.
Citing an example, he said that a promoter had explained to me how he was being sued by banks waving checkbooks, asking him to name the amount he wished.
This is the historical phenomenon of irrational exuberance, common to all countries during such a phase of the cycle, he said.
Unfortunately, he said, growth does not always happen as expected and the years of strong global growth before the global financial crisis were followed by a slowdown that spilled over into the world. in India, showing how much better the country was integrated into the world. .
The strong projections of demand for various projects turned out to be less and less realistic, as domestic demand slowed, he said.
He also pointed to the loss of interest of promoters and bankers for the increase of the NPAs.
On the subject of embezzlement and corruption in the NPA problem, he said: "There was definitely some, but it's hard to distinguish the exuberance of bankers, incompetence and corruption ".
"Obviously, the bankers have been too confident and have probably done too little due diligence on some of these loans.Many did not do any independent analysis and relied on SBI Caps and IDBI for due diligence. , and multiplies the possibilities of undue influence, "said the note.
Regarding the steps to be taken to avoid unproductive assets from recurring, Rajan said there was a need to improve the governance of public sector banks and project appraisal and monitoring processes in order to reduce the risks of unproductive assets. APM.
In addition, he also advocated for the strengthening of the recovery process and the removal of public sector banks from the government.
The Parliament's Budget Committee had invited Rajan to inform him after the former chief economic advisor (ECA), Arvind Subramanian, had congratulated him for identifying the NPA crisis and attempted to solve.
Rajan, who served as RBI's governor for three years until September 2016, is currently Distinguished Professor Katherine Dusak Miller in Finance at the Chicago Booth School of Business.
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