Rajan reveals alert to PMO on dud loans

Former RBI governor Raghuram Rajan has dropped a bombshell on the Narendra Modi government by stating that he had sent a "list of high-profile (bad loan) cases to the PMO urging that we coordinate action to bring at least one or two to book" but he was "not aware of progress on this front".

By Jayanta Roy Chowdhury and R. Suryamurthy
  • Published 12.09.18
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Raghuram Rajan

New Delhi: Former RBI governor Raghuram Rajan has dropped a bombshell on the Narendra Modi government by stating that he had sent a "list of high-profile (bad loan) cases to the PMO urging that we coordinate action to bring at least one or two to book" but he was "not aware of progress on this front".

Rajan's 17-page note was submitted to the parliamentary committee on estimates, which is headed by veteran BJP leader Murli Manohar Joshi who is currently out of favour with the Modi administration.

"The RBI set up a fraud monitoring cell when I was governor to coordinate the early reporting of fraud cases to the investigative agencies. I also sent a list of high-profile cases to the PMO urging that we coordinate action to bring at least one or two to book. I am not aware of progress on this front. This is a matter that should be addressed with urgency," Rajan said in his note.

Although Rajan did not reveal names in the cases he had red-flagged to the Prime Minister's Office, he stated in his note that "unscrupulous promoters who inflated the cost of capital equipment through over-invoicing were rarely checked".

Separately, in an interview to a television channel, Rajan said that he had in 2015 earmarked 10 big suspected "fraud" cases.

Tycoons such as Nirav Modi, Mehul Choksi and Vijay Mallya have since taken refuge abroad after some state-run banks were rocked by loan defaults arising from fraudulent practices.

Earlier this month, the Congress had targeted the Centre over a stalled probe against the Adani Group and demanded a time-bound, independent probe by a special investigation team into an alleged Rs 29,000-crore scam involving over-valuation of coal imports.

Rajan said another bad loan crisis was looming within the banking system because of the manner in which banks were being persuaded to shovel loans without any collateral to farmers and small and medium companies - two target groups that the Modi government has been trying to woo as it prepares for next year's general election.

"Credit targets are sometimes achieved by abandoning appropriate due diligence, creating the environment for future NPAs (non-performing assets). Both MUDRA loans as well as the Kisan Credit Card, while popular, have to be examined more closely for potential credit risk," Rajan said in his note while responding to a set of questions sent to him by the parliamentary committee.

Prime Minister Modi had launched the MUDRA loans scheme three years ago with fanfare. Data reveal that loans worth about Rs 6.3 lakh crore have been doled out without collateral to small businesses.

The kisan credit card scheme was first launched in 1998. Four years ago, the Modi government had stepped up its loan drive under the scheme under which loans of up to Rs 1 lakh do not require collateral.

Rajan cautioned against loan waivers. "Loan waivers, as RBI has repeatedly argued, vitiate the credit culture, and stress the budgets of the waiving state or central government. They are poorly targeted, and eventually reduce the flow of credit. Agriculture needs serious attention, but not through loan waivers. An all-party agreement to this effect would be in the nation's interest, especially given the impending elections," he said.

The former RBI governor has also red-flagged the Credit Guarantee Scheme for medium, small and micro firms, which is run by the Small Industries Development Bank of India (Sidbi), as "a growing contingent liability" which "needs to be examined with urgency".

The scheme, which was launched 17 years ago during the Atal Bihari Vajpayee regime and has since been renamed as Udaan, notched up over 25 lakh cumulative guarantee approvals in 2016-17 with an aggregate loan amount of over Rs 1.25 lakh crore.