NEW DELHI, Sept 11 - A larger number of bad loans, or NPAs, originated in 2006-2008 when Indian economic growth was strong as the banks made mistakes, former RBI Governor Raghuram Rajan has said.
He said that global slowdown, project cost overruns and government decision-making were among the factors that contributed to the process.
�A larger number of bad loans originated in 2006-08 when economic growth was strong, and previous infrastructure projects such as power plants had been completed on time and within budget. It is at such times that banks make mistakes. They extrapolate past growth and performance to the future. So, they are willing to accept higher leverage in projects, and less promoter equity,� Rajan said.
In a note to Parliament�s Estimates Committee on Non-Performing Assets (NPAs) of public sector banks, Rajan called for examining MUDRA loans and Kisan Credit Cards more closely for potential credit risk.
In the note prepared on request of committee Chairman and BJP leader Murli Manohar Joshi, the former RBI chief said that the Credit Guarantee Scheme for MSME run by SIDBI is a growing contingent liability and needs to be examined with urgency.
Rajan pointed out that the loan waivers vitiate the credit culture and an all-party agreement to this effect would be in the country�s interest in view of impending elections.
The Congress and Bharatiya Janata Party have traded charges over mounting NPAs and the Congress has been pressing the Narendra Modi government to announce loan waiver to farmers.
The former RBI Governor said that sometimes banks signed up to lend money based on project reports by the promoter�s investment bank without doing their own due diligence.
Rajan said that years of strong growth before the global financial crisis were followed by a slowdown, which extended to India and demand projections for various projects were shown to be increasingly unrealistic. � IANS