Banks went through their worst phase under Manmohan Singh, Raghuram Rajan: Nirmala Sitharaman - Hindustan Times
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Banks went through their worst phase under Manmohan Singh, Raghuram Rajan: Nirmala Sitharaman

New York | ByHTC and Agencies
Oct 17, 2019 12:09 AM IST

Nirmala Sitharaman was speaking at Columbia University’s School of International and Public Affairs, when she hit out at the former RBI governor for his recent comments regarding the state of India’s economy, which has slowed down to its lowest pace in more than five years.

Union finance minister Nirmala Sitharaman said on Tuesday that the Indian banking sector went through its “worst phase” during the tenures of former Reserve Bank of India (RBI) governor Raghuram Rajan and former Prime Minister Manmohan Singh.

Union finance minister Nirmala Sitharaman said on Tuesday that the Indian banking sector went through its “worst phase” during the tenures of former Reserve Bank of India (RBI) governor Raghuram Rajan and former Prime Minister Manmohan Singh.(PTI Photo)
Union finance minister Nirmala Sitharaman said on Tuesday that the Indian banking sector went through its “worst phase” during the tenures of former Reserve Bank of India (RBI) governor Raghuram Rajan and former Prime Minister Manmohan Singh.(PTI Photo)

Sitharaman was speaking at Columbia University’s School of International and Public Affairs, when she hit out at the former RBI governor for his recent comments regarding the state of India’s economy, which has slowed down to its lowest pace in more than five years.

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“While economists can take a view of what prevails today or prevailed years ago, but I will also want answers for the time when Rajan was in the governor’s post speaking about the Indian banks, for which today to give a lifeline is the primary duty of the finance minister of India. And the lifeline-kind of an emergency has not come overnight,” said Sitharaman.

During a recent lecture at Brown University, Rajan said that in its first term, the Narendra Modi government had not done better on the economy because the government was extremely centralised, and the leadership did not appear to have a consistent articulated vision on how to achieve economic growth.

Asked about that remark, Sitharaman said: “I do respect Raghuram Rajan as a great scholar who chose to be in the central bank in India at a time when the Indian economy was all buoyant... I’d like to say that very democratised leadership led to a whole lot of corruption”.

She added: “It was in Rajan’s time as governor of RBI that loans were given just based on phone calls from crony leaders and public sector banks in India till today are depending on the government’s equity infusion to get out of that mire.”

Her reference was to the rise in non-performing assets (NPAs) in India. Rajan was the RBI governor between 2013 and 2016, and it was during his tenure in April 2015 that the asset quality review (AQR) unearthed non-performing assets (NPAs) amounting to around 9 lakh crore, eventually leading to a clean-up drive.

In a blog post targeting Congress president Rahul Gandhi’s claims on bank loans, Sitharaman’s predecessor Arun Jaitley referred to the 2015 AQR and said that they had highlighted bad loans that had previously been hidden. “In 2015, an asset quality review was conducted by the Reserve Bank of India and as a result of AQR and subsequent transparent recognition by banks it was found that the NPAs were actually 8.96 lakh crores and the real amount was being hidden,” the blog said.

On February 11, 2016, speaking at Confederation of Indian Industry’s (CII) first banking summit in Mumbai, Rajan explained the rationale for the AQR: “Think therefore of the NPA classification as an anaesthetic that allows the bank to perform extensive necessary surgery to set the project back on its feet. If the bank wants to pretend that everything is all right with the loan, it can only apply band aids—for any more drastic action would require NPA classification,” he said, months before he quit the job.

Sitharaman said while she is grateful that Rajan did an asset quality review, people should know what makes the banks ailing today.

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