Congratulations to RBI Governor Dr.R.Rajan for his frank talk at Institute of Rural Management, Anand and as reported by The Hindu in its Business Page allotting nearly a third of the page.

The funny side is the entire newspaper of The Hindu's own Business Line did not find it worthwhile reporting, not a single line in any of its 20 pages of the day's edition, probably they offend powerful PSU banks' robbing lobbies.

Without recovering the bad loans, successive Finance Ministers are playing pinky ponky with respect to raising the prices of either petrol or diesel or LPG all of which are nothing but stealing money from the common man.

"Reserve Bank may give banks more leeway to deal with bad loans"

"Defaulting large borrowers are like freeloaders, says Raghuram Rajan"

The Hindu, Wednesday, November 26, 2014

The Reserve Bank of India can give banks more flexibility to restructure distressed loans in a bid to steer funding towards cash-strapped infrastructure projects, Governor Raghuram Rajan said here on Tuesday.

Dr. Rajan, however, said the RBI would continue to ensure lenders flag and deal with problematic loans quickly, given the dangers to the financial system should banks engage in ‘ostrich-like’ behaviour of ‘hoping the problem will go away’.

Reviving investment and boosting infrastructure are two key objectives for Prime Minister Narendra Modi, who won elections in May promising to rekindle the faltering economy after two years of growth below 5 per cent.

A major factor slowing credit flows to infrastructure projects has been the amount of bad loans on banks’ books. Including restructured loans, stressed assets are estimated at Rs.6 lakh crore ($97 billion), or nearly a tenth of total loans.

“The RBI is exploring ways to allow banks more flexibility in restructuring,’’ Dr. Rajan said in a speech at the Institute of Rural Management here.

“This is a risk we are prepared to take if it allows more projects to be set on the track to recovery,’’ he said, without giving details of measures being explored.

Still, Dr. Rajan said the central bank would oppose any delay by banks to recognise bad loans.

About 45 per cent of stressed loans have already gone sour. The remainder is in the ‘restructured’ category, which means the loans have problems but banks only need to set aside minimal reserves.

From April next, new rules will abolish the ‘restructured’ category and prompt banks to chase customers for payment or set aside billions more reserves, once non-performing loans are recognised.

“The fundamental lesson of every situation of banking stress in recent years across the world is to recognise and flag the problem loans quickly and deal with them,’’ Dr. Rajan said.

“So, regulatory forbearance, which is a euphemism for regulators collaborating with banks to hide problems and push them into the future, is a bad idea.’’

Dr. Rajan also warned of the negative consequences of borrowers defaulting without suffering a financial hit as this raised the cost of loans across the financial system — reiterating his previous comments.

Dr. Rajan estimated that power loans were three percentage points more expensive than home loans due to banks’ concerns about recovering debts from these types of borrowers.

The central bank tightened rules against these defaulters in September.

‘Riskless capitalism’

Accusing some large borrowers of enjoying ‘riskless capitalism’, Dr. Rajan said such entities were responsible for making banks’ credit profile unhealthy and these big clients were in effect becoming ‘freeloaders’ in the banking system.

Dr. Rajan also said it was the taxpayers and honest borrowers who end up paying the price for losses suffered by state-run banks due to bad loans given to a few big borrowers.

A large borrower, whose loan has turned bad, should not be “lionised as a captain of industry, but justly chastised as a freeloader on the hardworking people of this country,” the RBI Governor said. Asserting that he is not against risk-taking, Dr. Rajan said in cases of any stress, the promoter threatened to run an enterprise to the ground, asking the government, banks and regulators to make necessary concessions to keep it afloat. “We have to ask if our system of credit is healthy. Unfortunately, the answer is that it is not. The sanctity of the debt contract has been continuously eroded in recent years, not by the small borrower, but by the large borrower,” Dr. Rajan said. In scathing remarks on the misuse of the system by the large borrowers, Dr. Rajan said taxpayers and honest borrowers end up paying the price due to the excesses committed by large borrowers by way of losses to state-run banks and high pricing of loans.

“If the enterprise regains health, the promoter retains all the upside, forgetting the help he got from the government or the banks — after all, banks should be happy they got some of their money back!

“What I am warning against is the uneven sharing of risks and returns in enterprise, against all contractual norms established the world over — where promoters have a class of ‘super’ equity which retains all the upside in good times and very little of the downside in bad times,” Dr. Rajan said.

Dr. Rajan acknowledged that there was a growing restlessness in the society about such reckless behaviour of corporates.

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This news item was so sensitive as far as the money bags were concerned, looks like they have ordered it removed from the internet while other news from the same page of Business Line of Dec 25, 2014 could be found on their website.

Further we come to understand that there is a Godzilla called CDR sitting inside RBI office eating the wealth and prosperity of the people of India.

Business Line, Thursday, December 25, 2014.

RBI cell silent on RTI on Corporate Debt

"The CDR unit did not respond to query on its activities in FY2013-14"
PTI, New Delhi, December 24.

The Corporate Debt Restructuring cell of the Reserve bank of India, which has eased loan repayment worth 3.7 lac crores for top end business men of the country, has refused to reply to an RTI query about its operations saying the transparency laws does not apply to it.

Former Information Commissioner Shailesh Gandhi filed an RTI to enquire about the expenditure of the CDR cell during financial year 2013-14 and how much of it was financed by public sector banks and IDBI Bank. He also sought to know about the various audits the CDR system had under gone during the financial year, and final packages approved between April 1, 2011 and March 31,2014.

Gandhi also asked the total 'sacrifice amount' of all public sector banks as reported in the final CDR package approved by the CDR system and related information.

To his surprise, the CDR cell constituted by the RBI, a public authority under the RTI Act and dominated by public servants, refused to provide any information saying the RTI Act does not apply to it.

Shailesh Gandhi said "When a bank account appears to be turning bad it is called NPA. When a bank account is "restructured" it is not listed as NPA. This is a device used to give one more chance to a losing corporate on the verge of becoming bad debt.

The CDR cell has no legal status but has restructured corporate debt of 3.7 lac crores for 505 borrowers.

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