I am still here, don’t write obituaries, says Rajan

BENGALURU: Reserve Bank of India (RBI) governor Raghuram Rajan on Wednesday asked people not to write his obituary, saying he still has another two-and-a-half months

BENGALURU: Reserve Bank of India (RBI) governor Raghuram Rajan on Wednesday asked people not to write his obituary, saying he still has another two-and-a-half months to go at the central bank, and will visit India regularly even after he relocates to the US.

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“What I’m going to talk about today is there solution of financial distress. To some extent I’m talking about obituaries rather than birth announcements ,” Rajan said in his opening remarks during an event organised by industry chamber Assocham.

“In the last few days, I’ve read a lot of my obituaries. I will be leaving this office in September but I will be coming in and out of the country on numerous occasions. I will be reading and writing and speaking at several occasions.”

The speech is Rajan’s second public appearance since his announcement last Saturday that he will not seek a second term.

Taking on critics of his monetary policy, the RBI governor blamed bad loans of public sector banks, and not high interest rates, for the record low credit growth.

“I will argue that the slowdown in credit growth has been largely because of stress in public sector banking, and not due to high interest rates. As such, what is required is a clean-up of the balance sheets of public sector banks, which is what is underway and needs to be taken to its logical conclusion.”

High interest rate has been one of the strongest criticism levelled against Rajan.

Stressing that cleaning up of bank balance sheets and restoration of credit growth are vital and related elements in India’s growth agenda, Rajan said: “The government and RBI are helping public sector bankers in this difficult, but critical task. I know the process is working, so public sector banks will soon be set to finance the enormous needs of this economy once again.”

“…To the question of what comes first, clean up or growth, I think the answer is unambiguously “Clean up!”

He also warned banks against “ever-greening” unviable projects by throwing good money after bad money on the basis of unrealistic promises made by borrowers. “…it would be better for banks to write down loans to initial projects, rather than going deeper into the hole, because the promoter may incur new cost overruns as he expands. An incompetent or unreliable promoter will remain so even when the scale expands.”

Rajan also urged the government to infuse fresh capital into public sector banks, but reiterated his earlier position that the infusion must come from the government’s own resources and not the central bank’s. “The Economic Survey has suggested that RBI should capitalise public sector banks. This seems a non-transparent way of proceeding, getting the banking regulator into the business of owning banks, with attendant conflicts of interest.”

The RBI governor suggested that startups should access funds outside the banking sector. “It is hard for banks to lend to start-ups that don’t have hard collaterals… after sometime they have some software floating in the cloud.”

(With agency inputs)