RAJAN 3(Dcm47)

Under Rajan, the RBI undertook an asset quality review of Under Rajan, the RBI undertook an asset quality review ofbanks by issuing blanket orders to classify loans to certainaccounts as non-performing assets. The provisions led torecord losses by lenders and Rajan set them a deadline ofMarch 2017 to get done with the clean-up act. Gross non-performing assets ratio has shot up to 7.6 percent from 4.2 per cent in September 2013, while the overallstressed assets are estimated to be over 14.5 per cent, almostdouble the level when he took over. Even in the face of mounting pressure, RBI refused toextend any special dispensation and also stopped the debtrestructuring practice in April 2016. Rather, Rajan gave banksmore tools to resolve the stress through schemes likestrategic debt restructuring. Apart from the clean-up, Rajan said he would have liked tobe around till the Monetary Policy Committee driven ratesetting is in place. Under Rajan, the RBI reached a historic agreement with thegovernment to become an inflation-targeting central bank underwhich the MPC has been envisaged to make interest rate settinga collective call, rather than being driven by the Governor.This makes him the last governor to have the privilege ofsetting the monetary policy on his own. The headline inflation cooled to a tad over 6 per cent inJuly from the 10.5 per cent when he took over. The RBI is nowcontracted to get it down further to 4 per cent in the mediumterm with two percentage points leeway on either side. Even in the absence of an inflation-targeting mandate,Rajan hiked rates thrice to communicate the RBI’s intentionsfirmly, before shifting to rate cuts once the central bank wasconfident of the trajectory, in January 2015. The shift to accommodative stance has seen cumulative cutsof 1.50 per cent. Despite this and coupled with many moves onthe liquidity front, where the RBI has explicitly stated itsaim to get the deficit to zero, banks are yet to pass the fullbenefit to borrowers and have faced the Governor’s ire. A believer in competition, Rajan introduced a series ofreforms on the bond market, and also on new bank licensing,which saw introduction of two new universal banks and makingthe process on-tap. MORE PTI AA BEN DP CS BJABMSRE