"Sent High-Profile Fraud List To PM's Office": Raghuram Rajan's Bombshell

Lloyd Doyle
September 12, 2018

This revelation was part of the former Reserve Bank of India governor's written response to a parliamentary panel, one full of stark, biting comments on Indian banks' non-performing assets (NPAs). In a scathing indictment of the huge NPAs racked up by the big defaulters, Rajan writes, "Banks and promoters have to strike deals outside of bankruptcy or if promoters prove uncooperative bankers should have the ability to proceed without them". "Its nominees on bank boards have no commercial lending experience and can only try and make sure that processes are followed", he said in a note to Chairman of Estimates Committee Murli Manohar Joshi. I also sent a list of high profile cases to the PMO urging that we coordinate action to bring in at least one or two to book. Manmohan Singh. He wasn't aware of the extent of progress on his list, he added.

"Unfortunately, the tendency has been that these things take a lot of time before they label frauds", Rajan said, adding that once the government label frauds, it takes forever to follow the money trail and to get anything that convinces foreign courts as numerous fraudsters have gone overseas. He said the banking system has been singularly ineffective in bringing even a single "high profile fraudster to book".

"They (RBI nominee) offer an illusion that the regulator is in control, which is why almost every RBI Governor has asked the government for permission to withdraw them from bank boards", he said. When we demitted office the NPA was 2.83 lakh crore. Irani termed Rajan's report a "loud proclamation" of the corruption done by the Congress.

Rajan said a larger number of bad loans originated in the period 2006-2008 when economic growth was strong, and previous infrastructure projects such as power plants had been completed on time and within budget.

Tycoons such as Nirav Modi, Mehul Choksi and Vijay Mallya have since taken refuge overseas after some state-run banks were rocked by loan defaults arising from fraudulent practices. They extrapolate past growth and performance to the future. So, they are willing to accept higher leverage in projects, and less promoter equity.


Even Rajan's successor and present RBI Governor Urjit Patel had suggested withdrawal of nominee directors from the boards of public sector banks (PSBs) to avoid any conflict of interest. The phenomenon is "common across countries at such a phase in the cycle", Rajan said.

Project cost overruns escalated for stalled projects and they became increasingly unable to service debt, he said.

On wrongdoings malfeasance and corruption that might have led to the mounting NPAs, Rajan said "Clearly, bankers were overconfident and probably did too little due diligence for some of these loans".

"With the benefit of hindsight, we should probably not have agreed to forbearance, though without the tools to clean up, it is not clear what the banks would have done". Many did no independent analysis, and such outsourcing of analysis is a weakness in the system, and multiplies the possibilities for undue influence, he added.

In a different context, the former RBI governor blasted those who were saying that the RBI was responsible for the slowdown in credit and the economy because of its push to recognise NPAs, calling such claims "ludicrous".

Other reports by Iphone Fresh

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