Investigations into loan defaults should look at establishing criminality while guarding against indiscriminate targetting that can “chill” bank lending as well as the economy, RBI Governor Raghuram R
Investigations into loan defaults should look at establishing criminality while guarding against indiscriminate targetting that can “chill” bank lending as well as the economy, RBI Governor Raghuram Rajan said.
In all such cases, they should try to look at the circumstances in which bank loans were given to these companies —whether they were in the right spirit, given the information that was known then — and “be careful about hindsight being 2020”, he said.
“Both the finance minister and I have said it is important that we investigate to see the mistakes as well as criminal activity that may have taken place, but do it based on judgements that would have had to be made at that time and don’t use today’s thinking and information to guess at that,” he said. “Otherwise, you will chill bank lending and you will make sure that we really don’t get any risk-taking in this economy by entrepreneurs or bankers... We need both to get the economy to grow, that care has to be taken,” Mr Rajan told reporters after the first bi-monthly review of monetary policy in the current fiscal. He said that if banks give loans to some sectors which are currently weak but the weakness is considered to be temporary, and if some forbearance is being given, it does not immediately imply that there was banality, there was corruption and it was a bad action.
“So, one has to be very careful if three years from now these sectors turn out to be even worse or tend to have collapsed. But the action taken to support the sector at that time should not be seen with the 2020 hindsight,” he said. On KFA, it said it is cooperating with investigative agencies.
