Indiscriminate Naming of Defaulters Can Hurt the Economy, says RBI
Mumbai: Any indiscriminate namingandshamingof defaulterscanbe counterproductive to the economy as many defaults are due to genuine business reasons, RBI governor Raghuram Rajan said on Tuesday.
He, however, said he is for publicising the names wilful defaulters who game the system. “We have no problemwiththeintenttopublishthewilful defaulters’ list,’’ said Rajan. “That iswherethepromoterhas,intheeyes of thebank,takenthebankforgranted.” But, he said, disclosing every namemaydeterentrepreneursfrom taking risk. “Simply any default without understanding why, understanding the severity, is just put up for public to consume, it may create both a loss of business as well as undueanxietyandpanicand,therefore, chill business activity. If you are a promoter, why would you take any risk if in the slightest chance of default, your name is put up in public forshame?Idon’tthinkwewantthat kind of move,” Rajan said.
He also defended bankers against criticism for many lending decisions taken in the past and cautioned that “hindsight is always 20:20.” “We must look at what were the conditions under which loans were given by the banks, given the information that was known then and be careful about hindsight being 20-20,” Rajan said. “When the regulator decides whether a loan is deserving of forbearance, he does it based on whether he thinks the industry or the sector will broadly recover and therefore the forbearance can be exercised.” Rajan also said if banks were hand holding sectors facing temporary weakness it should not be seen as a criminal offence. “If banks give loans under these circumstances if there is some forbearance that takes place it doesn’t immediately imply that there was criminality, there was corruption that this is a bad asset, so one has to be very careful.”
OntheKingfishercase,Rajan,without getting into specifics, said the regulatory forbearance extended to aviation industry in 2010 was based on expectations the sector would bounceback.“Theforbearancebased on certain signal cases was given broadly on principals that the RBI hadagreedtoso.InKingfishercaseas wellaselsewhereitwasbasedonestimates of whether the industry will recover or not,” he said.
ON DISCLOSING NAMES