Raghuram Rajan Blames 'Over Optimistic Bankers' and 'Policy Paralysis' for Mounting Bad Loans

New Delhi: Former RBI governor Raghuram Rajan has blamed the “over optimism of bankers" and “policy paralysis" for mounting non-performing assets (NPAs) in his reply to a parliamentary committee which had sought his views on the pressing issue.

In a report, CNBC TV-18 quoted sources as saying that Rajan told the Murli Manohar Joshi-led panel that banks didn’t do “due diligence" on large loans and the post-2008 slowdown made their growth projections quite unrealistic

The former RBI chief is also learnt to have said that banks extended more loans to prevent ‘zombie’ loans from turning non-performing assets. The Parliament's Committee on Estimates had invited Rajan to brief it on the matter after former Chief Economic Advisor (CEA) Arvind Subramanian praised him for identifying the NPA crisis and trying to resolve it. Rajan, who was RBI governor for three years till September 2016, is currently the Katherine Dusak Miller Distinguished Service Professor of Finance at Chicago Booth School of Business.

The panel has already questioned senior finance ministry officials, including Finance Secretary Hasmukh Adhia and top brass of banks, about rising bad loans.

Members of the panel also demanded various documents including minutes of the board meetings of the public sector banks, in which high-ticket value loans were approved. The banking sector is grappling rising non-performing assets, which touched Rs 8.99 trillion or 10.11 per cent of the total advances at December-end 2017.

Of the gross NPAs, the public sector banks accounted for Rs 7.77 trillion. The rising number of banking frauds has also become a serious cause of concern.