Skip to content 
Search

Latest Stories

Bad loan mess: India central bank was slow to take timely measures

A FAILURE on the part of banks, the government and the regulator till 2014 has got us into the current bad loan mess and the resultant low capital buffers, Urjit Patel, the past Reserve Bank of India (RBI) Governor, has said, asking all to resist the temptation of going back to the status quo.

In his first comments after resigning as RBI governor on December 10 last year amid sharp differences with the government, Patel said banks indulged in over-lending, while the government did not "fully play" its role, and also conceded that the regulator should have acted earlier.


Speaking at an event in Stanford University on June 3, Patel listed out areas of concern for the country's banking sector, including high non-performing assets (NPAs) especially at state-run lenders, and current capital buffers being "overstated" and being insufficient to tackle the huge stress.

"How did we get here? Plenty of blame to go around! Prior to 2014, all stakeholders failed to play their role adequately. Banks, the regulator and government," he said in the presentation.

It can be noted that after 2014, which saw a change of guard in government and also Patel's predecessor Raghuram Rajan assuming charge, the RBI started an asset quality review, which led to the recognition of the huge pile of hidden stress in the system and resolution through the introduction of bankruptcy laws.

These actions led to a sharp decline in banks' ability to fund the needs of the economy, where growth has been sagging.

Patel, who spent over five years at the RBI, including his role as the deputy governor, advised to stay on the course even in the face of difficulties.

"Temptation to reset 'back to the past' should be eschewed," Patel said, adding that "episodic concerns" on stability are possible if there is "foot-dragging, or, worse, back-pedalling".

"Short-cuts/sweeping the problem under the carpet is unlikely to work, but will only delay unlocking of capital, and come in the way of financing future investment efficiently," he warned.    In the presentation, a copy of the speech was not available

Patel also said, "After fiscal dominance over monetary policy, are we looking at fiscal dominance over banking regulation now."

Patel said an asset quality review for the non-banking finance companies is "inevitable" given their interconnectedness in the financial system.

On the Supreme Court striking down the controversial February 12, 2018 NPA circular, which was also a major bone of contention between him and the government, Patel said only time will tell whether a system of "extend and pretend" will make a comeback.

"Issues of ever-greening the NPA problem may emerge again. Banks may drag their feet on decision making, viz. delayed negotiations/taking haircuts for timely resolution could come back to haunt the sector," he warned.

It can be noted that four days after this presentation at Stanford, RBI did come out with a revised framework after being forced by the Supreme Court which struck down the February circular.

Patel also went public with his disappointment with the execution under the Insolvency and the Bankruptcy Code, saying it has "thrown up a worrying number of exceptions" and signs of "gaming" are visible as many of the major cases are delayed beyond the 350-day resolution window.

He also sounded peeved at no divestment by the government in joint ventures, special purpose vehicles and asset management companies despite the equity markets overall remaining quite buoyant.

Patel said social sector requirements and an inability to access capital markets have resulted in the government's stake in many lenders going up as more infusions came from the government despite fiscal constraints.

He also sounded disappointed at the recent government forces bank consolidations, saying such mergers have "eroded" the value of the entity taking over weaker banks and termed IDBI Bank as a "highly problematic" entity, which was forced on Life Insurance Corporation of India (LIC).

Patel said the state-run lenders have a high ratio of non-operating expenses to earnings compared to their private sector peers.

"High-cost structure of government banks is borne by the economy; maybe impinging transmission of policy rate changes," he warned.

(PTI)

More For You

Bangladesh seeks US deal to shield garment industry from tariffs

Workers are engaged at their sewing stations in a garment factory in Savar, on the outskirts of Dhaka, on April 9, 2025. (Photo by MUNIR UZ ZAMAN/AFP via Getty Images)

Bangladesh seeks US deal to shield garment industry from tariffs

BANGLADESH, the world's second-biggest garment manufacturer, aims to strike a trade deal with the US before Donald Trump's punishing tariffs kick in next week, said the country's top commerce official.

Dhaka is proposing to buy Boeing planes and boost imports of US wheat, cotton and oil in a bid to reduce the trade deficit, which Trump used as the reason for imposing painful levies in his "Liberation Day" announcement.

Keep ReadingShow less
UK business district
The Canary Wharf business district including global financial institutions in London.
Getty Images

Bond yields ease following Starmer’s support for Reeves

THE COST of UK government borrowing fell on Thursday, partially reversing the rise seen after Chancellor Rachel Reeves became emotional during Prime Minister’s Questions.

The yield on 10-year government bonds dropped to 4.55 per cent, down from 4.61 per cent the previous day. The pound also recovered slightly to $1.3668 (around £1.00), though it did not regain all its earlier losses.

Keep ReadingShow less
modi-trump-getty
Modi shakes hands with Trump before a meeting at Hyderabad House in New Delhi on February 25, 2020. (Photo: Getty Images)
Getty Images

Indian exporters watch closely as Trump says trade deal with India likely

THE US could reach a trade deal with India that would help American companies compete more easily in the Indian market and reduce tariff rates, President Donald Trump said on Tuesday. However, he cast doubt on a similar deal with Japan.

Speaking to reporters on Air Force One, Trump said he believed India was ready to lower trade barriers, potentially paving the way for an agreement that would avoid the 26 per cent tariff rate he had announced on April 2 and paused until July 9.

Keep ReadingShow less
Kolhapuri sandal sales surge in India post Prada controversy

Customers shop for 'Kolhapuri' sandals, an Indian ethnic footwear, at a store in New Delhi, India, June 27, 2025. REUTERS/Adnan Abidi

Kolhapuri sandal sales surge in India post Prada controversy

INDIAN footwear sellers and artisans are tapping into nationalist pride stoked by the Prada 'sandal scandal' in a bid to boost sales of ethnic slippers with history dating back to the 12th century, raising hopes of reviving a struggling craft.

Sales are surging over the past week for the 'Kolhapuri' sandals that have garnered global attention after Prada sparked a controversy by showcasing similar designs in Milan, without initially crediting the footwear's origins.

Keep ReadingShow less
UK business district
The Canary Wharf business district including global financial institutions in London.
Getty Images

Economy grew 0.7 per cent in Q1 2025, fastest in a year

THE UK economy expanded at its fastest pace in a year during the first quarter of 2025, driven by a rise in home purchases ahead of a tax deadline and higher manufacturing output before the introduction of new US import tariffs.

Gross domestic product rose by 0.7 per cent in the January-to-March period, the Office for National Statistics (ONS) said, confirming its earlier estimate. This was the strongest quarterly growth since the first quarter of 2024.

Keep ReadingShow less