Inspection of bigger non-banking financial companies (NBFCs) on a more regular basis is among Reserve Bank of India (RBI) Governor Raghuram Rajan’s unfinished agenda.
In an interaction with television channels, Rajan said the asset portfolios of such NBFCs must be treated on a par of those of banks.
“What we do want to ensure is the bigger NBFCs are inspected regularly and that their asset portfolios are seen with the same kind of caution we see banks’, noting, however, that because they are financed usually with longer-term money, that they have a different capital requirement, that we can be a little more liberal on the risk that they take,” Rajan said in a television interview.
He called the political attacks on him as abominable. Rajan said he was open to staying a bit longer to complete the unfinished work of bank clean up, but was perfectly happy to go, too. “Some of these (recent) attacks were abominable, that is imputing sort of motives, alleging things completely without any basis,” he told a channel.
The governor made it clear that he does not want any particular segment to be exposed to any major risk. Allowing even a little risk-taking tend to affect banks, he said. Especially with respect to loan against property, Rajan said what they don’t want was the banks being heavily exposed. “Somebody has to finance those loans and those loans aren’t easily financed through a bond markets. So NBFCs do take up that kind of lending. What we have to make sure is that they have the full incentive to recover on those loans,” Rajan said in the interview.
Even with respect to entities like micro-finance institutions (MFIs) getting small bank licences, Rajan was asked about any possible red flags as there was an exponential growth even in their finances. “Remember that one of the factors in the economy today is that public sector bank loan growth is much weaker and as a result something else is filling the gap. Now, we have to be very careful that while the public sector banks are dealing with their balance sheet problems, we don’t completely shut off credit growth elsewhere. That is why private sector banks are also growing at 20-25 per cent,” he said.
Among the questions he faced was one on crony capitalists and their dues to banks. There has been a rumour that crony capitalists had a hand in his not getting an extension. “I don't think you should attribute this to some hidden hand. I feel, I have done what was needed to be done, if they had such power they would have stopped me (from doing) what was needed.”
On unfinished business, Rajan said, "The main issue is there are some things that remain unfinished.” He, however, added that 90-95 per cent of the job that he had taken on was complete and he had absolute freedom in doing his work.
Rajan said he had an agenda of things that needed to be done. He knew holding off tough decisions was not the answer as things would get very difficult in the future. “It is important to build a political consensus for these things, so we work with the government. The whole AQR (asset quality review) exercise was initially advertised to the government and then we worked with the government on rolling it out. So the political support for this has been built. But eventually if you make enough enemies on many fronts, maybe they get angry. But I do not worry about that,” he said.
He attributed his strengths to his academic background.
"First, university gives you a pretty thick skin. There are lots of attacks. I don't even pay any attention to it. However, obviously in this job there are legitimate criticisms … and those you can address and those I have tried to address in various speeches because it is important to convince the public in this country about the way you are going and why you are doing it. Because ultimately only with conviction will there be durability," he said.
Business Standard New Delhi,11th August 2016
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