Reserve Bank of India governor RaghuramRajan has reiterated his stance on bad loans, saying “overall economic downturn”—domestic and global—can be the reason for the mounting number of bad loans in public sector banks.

In a report to the public accounts committee (PAC), RaghuramRajancited six reasons which can lead to defaulting on loans. He said delays in statutory and other approvals especially for projects under implementation can lead to defaulting on loans. He said aggressive lending practices during the upturn of the economy can adversely affect banks, laxity in credit risk appraisal and loan monitoring and lack of appraising skills for projects can all result in bad loans. He also said wilful default, loan frauds and corruption can be reasons.

The PAC had observed that only public-run banks are facing this problem with a 5.98% NPAs while Private Sector Banks and Foreign Banks have a 2.2% NPA. Secondly, it questioned whether the reasons for the sharp increase in bad loans were in line with those listed by the Narsimham committee.

RaghuramRajan has in the past urged the government not to disclose the names of those who default on loans. He said this could lead to less risk-taking by businessmen, which in turn could have adverse effects on the economy. He has also said that the cyclical changes in the economy can result in defaulting on loans.

At the end of 2015, public sector banks were reeling under pressure from bad loans, with 701 accounts owing over Rs 100 crore. State Bank of India led the pack with the most amount of money lent.

 

 

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