Separate morality from NPA clean-up: RBI Guv

Amid raging controversy over loan defaults by corporates, RBI Governor Raghuram Rajan has said the issue of bad loans gets "loaded with a lot of morality" and it is necessary to keep criminal liability separate for putting the stressed assets back on track.

"What's happening on the NPA (non-performing assets) front...this becomes loaded with a lot of morality, are these good people, bad people. I think one should take out the morality from the NPA clean-up," he said delivering the Inaugural Kotak Family Distinguished Lecture at Columbia Law School here.

The Reserve Bank Governor said the NPA clean-up is simply about whether the loan is "performing or not performing. It may have become non-performing simply because you had terrible luck or somebody else's fault. Somebody canceled your licences, didn't give you approvals on time, your partner didn't perform. There could be all sorts of reasons why companies get into trouble".

"It is a completely separate issue of who to blame and whether there is crimi- nal liability involved. In some fraction of the cases there may be criminal liability involved. That should be separated from the whole issue of putting the assets back on track," he said.

Asserting that the "asset is not a criminal", he said the asset can produce value and can function.

Rajan emphasised that the government has said very clearly it will not interfere in the process of granting loans and "I think that is a very important development. The next stage has been on trying to improve the administrative structure in the banks". Rajan said last part of the post-tantrum stabilisation agenda has been to clean up the stressed assets in the banking sector in order to ensure banks have the room to lend again.

‘WATCHING MONSOON’

The RBI is closely watching inflation data as well as monsoon rain forecasts for deciding on further interest rate cuts and the monetary policy still remains in the "accommodative mode", Rajan said. Rajan, who had earlier this month cut interest rates by 0.25 per cent to 6.5 per cent, did not give any indication as to how much or by when further rate cuts would take place.

"We are still in accommodative mode but precisely how much and when we will have to see," Rajan said to a question on impact of monsoons on interest rates.

MONETARY POLICY PANEL

He said a six-member monetary policy committee will be in place to decide on interest rates.

"I will no longer be setting the interest rates in India. The committee will be setting," he said, adding that the virtue of this is that there are "six minds that come together to decide policies rather than one, there is continuity in the committee. It means the committee is much harder to pressurise if you want a particular outcome than any single individual".

MPC, which will include RBI Governor and three nominees of the government, will set interest rates to bring consumer or CPI inflation to pre-set targets. It will come into being after the Finance Bill 2016 is passed by the Parliament.

“We do want to have our banks get their money back. For that we need a proper bankruptcy system, a court system that functions in finite time and we didn't have that in the past”