Citing the ongoing IL&FS crisis, the past chief economic advisor Arvind Subramanian Friday called for an asset quality review (AQR) like the one carried out on the banks by the central bank, to fully gauge the extent of the hidden stress in the system. Stressing on the need for the Reserve Bank to function in an autonomous way, he also hit out at the recent "politicisation" of the issue, saying it is detrimental to the country's interests.

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"I am proposing an AQR for non-bank lenders as well, as I think it's time we come clean on this problem," Subramanian said at the launch of his book 'Of Counsel: The Challenges of the Modi-Jailtely Economy' published by Penguin Random House India, here this evening.

He wondered how the IL&FS issue, which involves Rs 95,000 crore in debt, could be hidden from the world that subsequently caused so much of pain in the system. In the book, he blames RBI for creating the IL&FS mess saying its regulatory failure has created the IL&FS monster and that RBI should be held responsible for the same.

Though RBI has a good reputation, it doesn't mean it's always right, as for years, RBI was unable to grasp the seriousness of loan repayment problems or identify prolonged frauds of Nirav Modi and the likes, he says in the book.

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"Now, with the recent shenanigans involving IL&FS being revealed, this failure seems to have encompassed not just commercial banks, but also non-bank financial companies. For these failures, the RBI needs to be held accountable," he says in the book.

Subramanian also questioned the "quality of oversight" mechanisms that a "monster" like IL&FS was missed by all. He, however, conceded that something like an AQR will lead to a push-back from the system, but stressed that the policymakers should persist.

Subramanian, who went back to the academics after his stint as the CEA between October 2014 and July 2018, said there has to be an overhaul of the system when it comes to asset quality stress as we can't depend on the same system that got us into the problem and to resolve the same problem.

Banker Uday Kotak, who was also present, said there is a need to put the non-bank lenders through the same rigours of regulation that govern the commercial banks.

On the issue of RBI autonomy, Subramanian said the issue should be sacrosanct and there should be creative tension between a government and central bank but underlined the need for cooperation when needed.

"The independence of the RBI is sacrosanct and so is the functional autonomy but I think politicisation of the RBI board is something that might not be in the larger interest of the nation," he said.

Subramanian, who first mooted the idea of using the excess capital of RBI in his past economic survey, reiterated that the money should be used for recapitalising state-run lenders with an explicit message of reforms taking place.

He, however, said the money should not be used for bridging fiscal deficit or any other government purposes, saying this will be akin to "raiding the RBI."