What was RBI doing? CAG on NPA crisis
Comptroller and Auditor General of India (CAG) Rajiv Mehrishi on Tuesday questioned the role of the Reserve Bank of India (RBI) in the present banking crisis, asking what the regulator had been doing when banks were lending huge amounts that resulted in assetliability mismatch and mounting bad loans.
The banking sector had non-performing assets (NPAs), or bad loans, worth over ~9.61 trillion by the end of 201718, according to the government data.
“In the present banking crisis, we all have a narrative about how it can be sorted out; recapitalisation, of course, is a very strange word to be used for the subsidies, but nobody is asking the real question. What was the regulator (RBI) doing? What is its role? What is its responsibility?” he asked, while speaking a the launch of Indian School of Public Policy (ISPP) here. The major cause of current banking crisis is a huge asset liability mismatch, but nobody is talking about this. There is lack of public policy debate, he said.
He said India lacks a flourished bond market, in the absence of which banks are forced to lend to long-gestation infra projects. When these projects run into any hurdle, their difficulties percolate into the difficulties of banks, he said.
The CAG also pointed out that there is lack of public policy debate or a narrative.
Despite banks’ own mismanagement as well as theft of public money, which are amongst the reasons behind the banking sector mess, there is much more to this, he added.
“If banks were going berserk with their lending, what was the regulator doing? And if it (RBI) is accountable for this crisis, that is also a narrative nobody is talking about,” he said.
Of the over ~9.61 trillion banking sector NPAs as on March 31, 2018, ~853.44 billion emanated from agriculture and allied activities, while the bulk of ~70.3 million originated from loans to the industrial sector.
Speaking on economic reforms and the Centre-state relationships in enacting changes, the chairman of the 14th Finance Commission and former revenue secretary N K Singh said the Centre alone cannot bring about economic overhauling. He also talked about the pedagogy built around the Centre-state relationships and the unfinished agenda of India’s important economic reforms and said mere tinkering will not do and deep structural reforms are needed. He said India dearly needs the structural reforms and a lot of these relate to what the state governments can do in this direction.
The ISPP will begin its first batch of one-year full-time programme in public policy, design, and management to professionals with two to three years of relevant experience from 2019.