Indis­crim­i­nate Nam­ing of De­fault­ers Can Hurt the Econ­omy, says RBI

The Economic Times - - Rbi Monetary Policy -

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.

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