"Clean up!" Rajan's clear message to banks
Rajan last year undertook a massive overhaul of banks' stressed assets, asking each bank to provision for all assets which could potentially sour by March 2016.
The Reserve Bank of India Governor Raghuram Rajan, on Wednesday urged that there is a need to get public sector banks into lending to the industry and infrastructure, else credit and growth will suffer as the economy picks up. He was speaking on 'Resolving stress in the banking system' at an event organised by Assocham in Benguluru.
"It is not the level of interest rates that is the problem, instead, the loans already in public sector banks' balance sheets are stressed, and therefore their unwillingness to lend more to those sectors to which they have high exposure," Rajan emphasised.
Rajan last year undertook a massive overhaul of banks' stressed assets, asking each bank to provision for all assets which could potentially sour by March 2016.
For this, Rajan had set a deadline of March 2017 for them to clean up the bad loans on their balance sheets.
Today, in his speech, Rajan also underlined that, "Whenever one sees a slowdown in lending, one could conclude there is no demand for credit – firms are not investing. But what we see here is a slowdown in lending by public sector banks vis a vis private sector banks. Why is that?".
According to a PTI report, in 2015-16, the credit growth has hit a near six decade low at around 8.6%, while bad loans in the system have crossed 13% at over Rs 8 trillion in last fiscal year.
Further, he said, that the clean-up of the balance sheet of public sector banks will create room for lower interest rates.
This was clearly in defend of his decision to hold back high interest rates as his focus was to fight inflation, in which he was successful as CPI came down from double digit to single digit.
"In sum, to the question of what comes first, clean up or growth, I think the answer is unambiguously “Clean up!”. Indeed, this is the lesson from every other country that has faced financial stress. It is important, therefore, that the clean-up proceeds to its conclusion, without any resort to regulatory forbearance once again", Rajan added.
Get Latest Business News, Stock Market Updates and Videos; Check your tax outgo through Income Tax Calculator and save money through our Personal Finance coverage. Check Business Breaking News Live on Zee Business Twitter and Facebook. Subscribe on YouTube.
RECOMMENDED STORIES
SBI 444-day FD vs Union Bank of India 333-day FD: Know maturity amount on Rs 4 lakh and Rs 8 lakh investments for general and senior citizens
Power of Compounding: Salary Rs 25,000 per month; is it possible to create over Rs 2.60 crore corpus; understand it through calculations
New Year Pick by Anil Singhvi: This smallcap stock can offer up to 75% return in long term - Check targets
PSU Oil Stocks: Here's what brokerage suggests on these 2 largecap, 1 midcap scrips - Buy, Sell or Hold?
Power of Compounding: How many years it will take to reach Rs 2 crore corpus if your monthly SIP is Rs 3,000, Rs 4,000, or Rs 5,000
Retirement Calculator: 40 years of age, Rs 50,000 monthly expenses; what should be retirement corpus and monthly investment
08:18 PM IST