The disorder of the NPA: what Raghuram Rajan, former governor of the RBI, proposes to tackle the problem of bad loans

Raghuram Rajan briefed the Parliament's Budget Committee after former Chief Economic Adviser (ECA) Arvind Subramanian praised the former for identifying the NPA crisis.

The governance of public sector banks and the process of monitoring nonperforming assets need to be improved to cope with the growing problem of bad debt, said former Governor of the Reserve Bank of India (RBI), Raghuram Rajan. In addition, the loan collection process needs to be strengthened and public sector banks need to stay away from the government, said Raghuram Rajan, of the PTI agency.

Raghuram Rajan briefed the Parliament's Budget Committee after former Chief Economic Adviser (ECA) Arvind Subramanian praised the first for identifying the NPA crisis and finding solutions. Rajan is currently Distinguished Katherine Dusak Miller Professor of Finance at the Chicago Booth School of Business. He served as governor of the RBI for three years until September 2016.

NPA disorder

The bad loan problem is mainly due to the slowdown in the government's decision-making process and economic growth, with a downward trend with more optimistic bankers, he told the parliamentary group in a note. "A variety of governance issues such as the suspicious allocation of coal mines and the fear of investigation have slowed the government's decision-making in Delhi, both in the UPA and in NDA governments," said PTI.

Lack of due diligence

"Obviously, the bankers were too confident and probably did not do enough due diligence for some of these loans. Many have not done any independent analysis and have placed too much faith in SBI Caps and IDBI to do the right thing. Such an outsourcing of analysis is a weakness of the system and increases the possibilities of undue influence, "says the note.