Reserve Bank of India governor Raghuram Rajan on Friday lashed out at rich businessmen making big personal spends at a time when their companies are struggling with losses and debt.
“If you owe a lot of money and still celebrate birthday bashes, it gives a wrong message to the people... If you are in trouble cut down your expenses, show to the people that you are doing something,” Rajan told NDTV in an interview at Davos on Friday on the sidelines of the World Economic Forum (WEF).
While he did not name names, Rajan has in the past decried the tendency of banks to continue to lend to businesses that have history of letting loans turn bad. Indian banks have been over the last few years been struggling to contain their high levels of non-paying assets, which interestingly enough is dominated by big business houses.
In the case of sick companies that turn insolvent for genuine reasons, the bankruptcy code bill, which seeks to replace the country’s archaic bankruptcy rules and deal with NPAs, “will make a big difference”, Rajan said.
The level of non-performing asset (NPA) — loans that do not yield returns — is mounting for public sector banks. At present, it is about 6% of total advances.
Supporting the Start Up India programme launched by Prime Minister Narendra Modi on January 16, the RBI governor said that entrepreneurship needed to be “celebrated” and encouraged.
In a separate interview to Bloomberg TV, Rajan said economic reforms in India are going in the right direction, but the level is “wrong”. “The direction is right. The level is wrong. We have too much of the wrong kind of regulation and too little of the right kind of regulation.”
“So we do need to hack away at this, and it will take time, it doesn’t happen overnight. We are doing it. We do recognise that we overregulate, that business needs a better environment,” he said.
“There are a whole set of new businesses coming in, which we have to find ways to deal with. For example, online lending. How do we do with what happens in a downturn?”
He said people tend to talk only about big-ticket items, but lose out on other things. “Like in India there’s now a goods and services tax (GST) which is likely to unify the country. That’s stuck in some Parliamentary discussion between the Opposition and the government. Hopefully it will be done sooner. But really there’s a lot going on the ground, which is less obvious,” he said.