Rajan On Bad Loans: Penalise Criminal Actions, But Don’t Indulge in Broad Fishing Expedition

Reserve Bank Governor Raghuram Rajan on Saturday said that the central bank has put in place process to penalise wilful defaulters, but accepted that there are problems when it comes to implementation.

“One of the problems in the past has been difficulty of enacting the full process given the necessity for following certain aspects that judiciary focussed on… Going forward, I hope this process is streamlined,” Dr Rajan said in answer to a question about ongoing investigation related to IDBI Bank’s Rs 900-crore loan to now defunct Kingfisher Airlines.

The collapse of Kingfisher Airlines and the subsequent default on the Rs 9,000 crore loan owed by the carrier has become a flashpoint at a time when state-run lenders have come under huge pressure because of mounting bad loans.

Dr Rajan today said, “We have to be careful going forward that on one hand we penalise criminal actions… and at the same time we don’t indulge in a broad fishing expedition, which then becomes a reason for banks to get worried about loans… which then will hamper recovery and absolutely important investments in infrastructure that have to take place.”

“As a system, we have to draw that balance very carefully. We’re hopeful that we can manage that.”

Kinghfisher Airlines’ promoter Vijay Mallya, a guarantor to the loan, was declared as a wilful defaulter in 2014. His departure from India, earlier this month, has sparked uproar in parliament, with the opposition accusing the government of “criminal conspiracy”.

Finance Minister Arun Jaitley, who was addressing the media following a meeting of the central bank’s board of governors, said, “Individual misdemeanour…will have to be treated differently than the entire investigative setup.”

Both the finance minister and the RBI governor however maintained that the bigger problem of bad loans should not be mixed with individual cases such as that of Kingfisher Airlines.

“As pointed out, we don’t want to create a situation where we overstate the crisis…and in the process the whole activity of lending for growth itself starts suffering – because people become extraordinarily defensive – we do not want to reach that situation,” Mr Jaitley said.